U.S. Securities and Exchange Commission
Washington, DC 20549
AMENDMENT NO. 1 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Communications/USA, Inc.
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(Name of Small Business Issuer in its charter)
Florida 65-0576171
.............................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
2240 Woolbright Rd., Suite 336, Boynton Beach, FL 33426
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (407) 739-9151
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on
to be so registered each class is to be
registered
.............................................................................
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.01
.............................................................................
(Title of Class)
.............................................................................
(Title of class)
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PART I
Item 1. Description of Business. (101)
(a) Business Development.
Communications/USA, Inc. ("Comm/USA"), a Florida corporation, was
incorporated in December, 1992. In May, 1995, Comm/USA executed a contract to
acquire all of the issued and outstanding shares of Gulf Coast Communications,
Inc. ("Gulf Coast") d/b/a Voice-Tel of West Florida, a Florida corporation.
The transaction closed on November 28, 1995. In October, 1995, Comm/USA
assigned all of its right, title and interest in the Gulf Coast contract to
CommTel/USA, Inc. ("Comm/Tel"), a Florida corporation, Comm/USA's wholly owned
subsidiary. Gulf Coast was organized in June, 1989 and Comm/Tel was
organized in August, 1995. In October, 1995, Comm/Tel executed an agreement
to acquire all of the assets of Feiman & Holliday, Inc., a Florida
corporation d/b/a Voice-Tel of Southwest Florida ("Voice-Tel SWF") and closed
on the transaction on November 28, 1995. Additionally, in October, 1995, Comm/
Tel executed a contract with the owner of forty-five percent (45%) of the
common shares of Holt & Feiman, Inc., d/b/a Voice-Tel of Tallahassee, Inc.
("Voice-Tel TAL"), a Florida corporation, to purchase forty-five percent
(45%) of Voice-Tel TAL.
Comm/USA acquired 100% of the issued and outstanding shares of common
stock of Gulf Coast on November 28, 1995, pursuant to a stock purchase
agreement dated May 24, 1995, between Comm/USA and the two stockholders of
record of Gulf Coast. In October 1995, Comm/USA assigned all of its rights,
title and interest in the Gulf Coast stock purchase agreement to Comm/Tel.
The agreement, as amended, provides for a purchase price of $550,000, with
(i) $325,000 in cash payable on or before November 29, 1995; (ii) a $75,000
promissory note payable on or before February 27, 1996; and (iii) a $150,000
promissory note payable on February 27, 2001, with a holder's option for a
balloon payment of the entire amount on February 27, 1998. The $325,000 cash
payment was made at Closing and the $75,000 note was paid on February 27,
1996. In addition to the above-mentioned promissory notes, the former Gulf
Coast Stockholders have the right to receive an aggregate of 125,000 shares of
Comm/USA's common stock, par value $.01 ("Common Stock") or 2.5% of Comm/USA's
then issued and outstanding shares of Common Stock, whichever is greater,
upon completion of their first year of
employment, and an additional 125,000 shares of Common Stock or 2.5% of
Comm/USA's then issued and outstanding Common Stock, whichever is greater, upon
completion of their second year of employment.
Comm/Tel acquired the assets of Voice-Tel SWF pursuant to an asset
purchase agreement dated October 23, 1995, between Comm/Tel and Voice-Tel SWF.
The asset purchase agreement provides for Comm/Tel's acquisition of certain
assets of Voice-Tel SWF, including Voice-Tel SWF's rights under its franchise
agreement with Voice-Tel Enterprises, Inc. ("Voice-Tel"), telecommunications
equipment, and a rebate of certain telecommunications cost from Voice-Tel in
the amount of $6,000. In exchange, Comm/Tel (i) assumed approximately
$235,000 of Voice-Tel SWF's liabilities, (ii) transferred $30,000 in cash to
certain stockholders of Voice-Tel SWF, and (iii) transferred 312,500 shares
of Common Stock to the shareholders of Voice-Tel SWF.
On October 22, 1995, Comm/Tel entered into a stock purchase agreement
with Robert Feiman, a forty-five percent (45%) owner of Voice-Tel TAL, to
acquire forty-five percent (45%) of the issued and outstanding shares of
common stock of Voice-Tel TAL in
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exchange for (i) a one time payment by Comm/Tel to Robert Feiman of $15,000 in
cash; and (ii) for Comm/Tel's best efforts to repay approximately $50,000 in
loans made to Voice-Tel TAL by Robert and Roberta Feiman. The transaction is
contingent upon approval of the transaction by the majority shareholder of
Voice-Tel TAL, and as of the date of this registration statement, such approval
has not yet been obtained.
The term "the Company" that is used throughout this section includes
Comm/USA, Comm/Tel, Gulf Coast, and Voice-Tel SWF. Other than the fact that
Gulf Coast and Voice-Tel SWF held franchise agreements from Voice-Tel that
were material to their acquisition as described above, there has been no prior
affiliation between Voice-Tel, Gulf Coast, Voice-Tel SWF and/or the Company.
(b) Business of the Company
The Company owns and operates interactive voice messaging franchises in
the Voice-Tel system. Voice-Tel is the most widespread interactive voice
messaging company in the United States, operating a digital telecommunications
network through independently owned franchisees. The network covers the
greatest geographic area in the industry, and includes approximately 3,500
cities. The system operates on proprietary software which was created by
Centigram Communications Corporation. According to Centigram, the Voice-Tel
system accounted for less than 10% of Centigram's revenues since 1993. The
Voice-Tel system operates through a "network" which connects all of the
Voice-Tel franchises together and permits messaging among all of the
customers of all of the franchisees. This network, which connects
approximately 3,500 cities, interconnects approximately 400,000 customers who
use Voice-Tel messaging to communicate. Although Centigram provides messaging
equipment to companies other than Voice-Tel, none of its other customers
interconnects as many individuals and cities as Voice-Tel. Other than the
contractual agreements between Centigram and Voice-Tel for provision of
hardware and software, the Company is not aware of any other affiliation
between Centigram and Voice-Tel.
The Company operates in the following sales territories: (i) the cities
of Tampa, St. Petersburg, Clearwater, Largo, Bradenton, and Sarasota; and (ii)
the Metropolitan Statistical Areas of Lakeland-Winter Haven, Melbourne-
Titusville-Palm Bay, Fort Pierce, Fort Myers-Cape Coral, and Naples. The
Company is also negotiating various contracts to acquire additional Voice-Tel
franchisee companies both in and outside of Florida.
The Company was originally formed for the purpose of becoming an
equipment leasing company. The original concept was abandoned and the
controlling shareholder thereafter sought additional business opportunities
for the Company, which culminated with the execution of the agreements to
acquire Voice-Tel franchises.
History of the Voice Mail/Voice Messaging Industry
Voice mail began in 1964 as a result of the Carterphone decision giving
residential and business customers the right to own and maintain telephone
equipment, The Carterphone decision gave rise to the computer premises
equipment "CPE" interconnect industry, including telephone sets, telephone
answering devices (TADs), key and hybrid systems, PBXs and, ultimately, voice
mail systems.
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The high acceptance of TADs indicated that individuals wanted their
telephone answered when they were unable to answer a call personally. The
early TADs were not particularly reliable, being essentially simple tape
recorders that reused the same tape until it jammed or tore. The voice
quality was generally raspy, attributable to the reuse of the tape. The early
machines did not offer remote pickup or toll savers, nor the ability to change
the greeting remotely. Sales continued to demonstrate the public's desire
to have their calls answered automatically despite the mediocre quality of the
early TADS.
In 1979-1980, prior to divestiture, AT&T attempted to conduct a voice
mail service trial in what was then Pennsylvania Bell. The Federal
Communications Commission (FCC), however, blocked the voice mail trial on the
grounds that voice mail was to be considered "data processing."
The early voice mail manufacturers directed their late 1970s/early 1980s
products and sales efforts to the business marketplace. The PBX manufacturers
began to offer voice mail as an option, also addressing the business segment.
Both the voice mail and PBX vendors were targeting large customers since early
voice mail platforms and PBX voice mail options were expensive. While the
residential market clearly wanted their calls answered, many businesses were
leery of offending their callers because of real and/or perceived bias against
"talking to a machine." A second generation of voice mail manufacturers entered
the market in the early 1980s, offering smaller, more affordable systems for
the small to mid-size business marketplace.
Consumer (or residential) customers continued to have only one option,
the telephone answering devices, although the TADs were gradually improving in
quality and reliability. By the late 1980s, "talking to a machine" had become
routine in both the residential and business communities.
Until this point, the vast majority of voice mail systems were being
used for automated call answering, although interoffice messaging was
available to the corporate users. Many companies found their employees
continued to walk down the hall to talk in person instead of using their voice
mail platform to message back and forth. Human behavior, like taking a work
break to walk down the hall, will likely continue, but having employees accept
the value of messaging is essential to effective implementations.
In 1980, a new option was introduced to the American business market. A
voice messaging service using proprietary software on a modified Digital
Equipment Corporation (DEC) platform was introduced. Large multi-location
accounts like Dow Jones, Procter and Gamble, TWA and other airlines used the
system.
As an alternative to CPE, voice mesaging services began to be introduced.
Tigon in 1983, (now Octel Network Services), VoiceCom in 1984 and Voice-Tel in
1990 offered interLATA national (and international) voice messaging.
In certain cases, these services can be used as call answering, but the
primary advantage is the ability to exchange messages with field personnel,
customers, vendors, and others. The secondary advantage is that the
maintenance of the voice mail platforms is performed by the service providers.
Outsourcing became a growing trend, with very large corporate users
having the service providers maintain the customers' CPE equipment at
headquarters. Providers also offered service for smaller field branches and
offsite personnel where the cost of CPE voice mail platforms could not be cost
justified.
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The most common way for a user to access a Tigon or VoiceCom mailbox is
to dial an 800 number. The cost of the 800 usage adds significantly to the
monthly cost of the mailbox. By 1991, VoiceTel offered local access in most
US major metropolitan areas. Voice-Tel franchisee offer local access by
acquiring direct inward dialing (DID) numbers from local telephone companies
(ie: companies that offer local telephone service in their specific locations).
A DID number is simply a seven digit telephone number. These DIDs are purchased
by the Voice-Tel franchisee in bulk and then issued to each "voice mailbox"
which is assigned to an end user. By having Centigram equipment connected to
the local telephone service provider, Voice-Tel franchisees can offer local
service. Companies like Tigon and VoiceCom would need to have
telecommunications equipment in numerous locations to be able to offer local
access. Companies such as these can save money by having equipment in only one
or a small number of locations, and can then offer service through an 800
number. The Company is not presently aware on any initiative by either Tigon
or VoiceCom to offer local access.
During post-divestiture in the mid-1980s, the Regional Bell Operating
Companies (RBOCs) began to explore opportunities to offer voice mail service.
In the late 1980s, several trials were underway. By 1990, four of the RBOCs
were in the voice mail service business, with the other three joining in by
1992.
Six of the RBOCs have had greater success with the residential market
than the business market, averaging 80% residential to 20% business. The
Pacific Bell RBOC is the exception, with more than 60% business mailboxes
at year-end 1994.
The TADs continued to improve in quality and were being incorporated
into telephone sets, along with enhanced features such as speed dialing,
redial, and conference calling. In the early 1990s, digital answering devices
were introduced with greatly enhanced quality, capacity and features and a
higher price tag.
The Voice-Tel System
The Company owns franchises granted by Voice-Tel Enterprises, Inc.
("Voice-Tel or VTE"). VTE is a privately-owned company and was
incorporated in 1986. VTE started operations as a franchise
organization in the Ohio area. The franchisees, using Centigram
platforms, operated local area voice mail service bureaus
selling mailboxes to business accounts. The organization grew in the
eastern states, reaching about 30 locations by 1990.
By early 1990, Voice-Tel wanted to expand its coverage to include the
western states. Voice-Tel acquired Amvox in 1990. At that time,
Amvox had a presence in over 50 major metropolitan cities; over 100
cities including suburban coverage. Amvox had begun construction on a
digital network and had about 15 cities linked together, allowing
customers to exchange messages from one city to another.
Management believes that the acquisition of Amvox was attractive to
Voice-Tel for many reasons including (i) Amvox used Centigram platforms
exclusively; (ii) Amvox had significant coverage in the western two thirds of
the country; (iii) Amvox locations tripled VoiceTel's city coverage; and (iv)
Amvox had a business alliance with Amway Corporation. The Company believes that
the business alliance with Amway was significant for three reasons: (i) Amway
had a significant investment in Amvox; (ii) Amway
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distributors bought Amvox mailboxes for their own use; and (iii) Amway
distributors sold Amvox mailboxes.
The Amway affiliation has continued with Voice-Tel. Amway distributors
represent more than a third of Voice-Tel's total customer base; Amway
Corporation also has a 20 percent owenership in Voice-tel. One of the major
advantages of the relationship is the 'built-in" customer base when a new
new location is opened. The Amway distributors are given advance knowledge
of the new service and are ready to sign-up. Amway distributors communicate
with their superior and subordinate distributors (multi-level marketing) via
voice messaging. Originally, Amway distributors exchanged messages locally
(on the same platform), and as the digital network gradually expanded,
messaging became nationwide. Amway distributors have a greater presence in
suburban and rural areas than in most major metropolitan cities. Amway
distributors are also encouraged to sell Amvox voice mailboxes.
The digital network was completed in 1991, allowing nationwide messaging on
the Centigram platforms.
Unlike Voice-Tel, Octel Network Services and VoiceCom (see "Competition")
market principally to large, multi-location corporate accounts. To highlight
some of the differences, Voice-Tel service offers: (i) Simplicity; (ii)
Inexpensive and competitive services in comparison with RBOC services; (iii)
Direct inward dial (DID); (iv) Local access - no need for 800 usage charges;
Toll savers; (v) Local sales and local customer support; (vi) Nationwide
and international messaging with local access available; and (vii) Many
individual accounts. Options include: Pager activation; Outdial message
notification; 800 service for customers who feel they need it for their
customers; and Revert to operator.
From the beginning, Voice-Tel has marketed a service that is simple to
learn and use, and is free of complicated and expensive "bells and whistles."
Voice-Tel, (and Amway/Amvox) mailboxes are DID numbers. The customer is
assigned a seven-digit local DID telephone number. The customer can have a
white page listing in their name even though Voice-Tel is the customer of
record for a DID number. This is possible under the provisions of the RBOC
joint user group tariffs.
The mailboxes can provide: (i) Voice messaging; (ii) Call answering;
(iii) Alternate telephone numbers; (iii) Menu boxes (directing callers to
appropriate mailbox); (iv) Broadcasting; and (v) Audiotex.
Unlike users of the RBOCs' voice mail services, Voice-Tel customer are
classified neither as residential nor business accounts because the DID
mailboxes are not associated with the customers' existing telephone numbers.
The Amway distributors can be considered hybrid customers in that they
typically work from their homes on residential lines. The Voice-Tel corporate
accounts more closely resemble RBOC business customers, except that Voice-Tel
customers need to receive and send messages to other locations.
Historically, the Voice-Tel franchisees have had the greatest success
selling to small and medium-size service accounts, such as real estate
offices, financial services. The sales emphasis is on network-based
messaging rather than simple call answering.
The Voice-Tel franchisees have targeted small to mid-size accounts
because of the need to sell within their territory. At year-end 1994,
Voice-Tel had local access in 3,485 cities in the US (46 states), and 15
cities in Puerto Rico, Canada, Australia and New Zealand.
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Voice-Tel currently has local access in approximately 3,500 domestic
cities. In these terms, Voicetel is the closest to having an ubiquitous
network. However, by using Centigram platforms exclusively, a caller using
a different platform cannot now message with a Voicetel customer, or vice
versa.
A universal network, with ubiquitous access and inter-machine
operability, would offer a powerful asset for securing national accounts and
augmenting the Amway individual mailbox sales and messaging revenues.
Voice-Tel has concentrated on expansion for the past several years both
domestically and internationally. It is unknown whether or not Voice-Tel will
invest in the research and development of the necessary software to implement
inter-machine functionality.
Products, Services and Markets
Interactive Voice Messaging
Interactive voice messaging is a service which allows users to talk back
and forth to each other and to send messages to one or hundreds of people with
just one telephone call. The messages can be saved and/or forwarded to other
users. Voice messaging services are accessed world-wide, wherever touch-tone
telephone service is available. The service has flexible interactive
answering and broadcast capabilities that management believes makes the system
more accessible than e-mail, more personal and powerful than voice mail
machines, and more detailed and informative than pagers. As a result, the
Company believes that the system is more practical and user-friendly for the
increasingly mobile executive who relies more and more on voice messaging
services.
Users of voice messaging include multilevel marketing companies, such as
Amway Corporation and Excel Telecommunications, and corporations or
individuals who desire interactive voice messaging, e.g. local real estate
brokers who desire to be able to communicate with their agents, and companies
with field sales and service forces.
Long Distance Telephone Service
Debit cards enable a caller to make long distance toll charge calls from
any touch tone telephone at lower rates than many alternatives, and assists
users in budgeting their telephone usage. Additionally, debit cards have
instructions in various languages, and loss or theft amount is limited to the
value remaining on the debit card.
Traditional users of debit cards include military personnel, college
students and their parents, foreign exchange students, foreign visitors,
tourists, Inner-city residents, Ship employees-crew members, sales personnel,
hospital employees and patients, migrant workers, truck drivers, nursing home
patients, and business travelers.
In the United States, this segment of the industry is in its infancy and
is growing rapidly. Industry sources estimate that more than 500 companies are
making and selling debit cards, including companies such as MCI and Sprint.
Sales of the cards was approximately $65 million in 1993 and $325 million in
1994. By the first quarter of 1996, industry experts expect sales to reach the
annual rate of at least $1 billion. In 1994, the international debit card
business was estimated at $4 billion. The Japanese telephone debit card
business was estimated to be $2.5 billion in 1994.
Other Services
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Presently, the Company offers paging services of a third party vendor
that it resells to its customers. The pagers are connected to the customer's
voice mailbox, so that when messages are deposited in a customer's box, they
are routed to the pager and their pager alerts them to call their voice
mailbox.
Distribution Methods
Voice Messaging
The Company distributes its voice messaging services through Voice-Tel,
which is the most geographicly diverse interactive voice messaging company in
the United States. Voice-Tel operates a digital telecommunications network
through independently owned franchisees. The Voice-Tel network covers the
greatest geographic area in the industry, and includes over 3,500 cities. The
system operates on proprietary software which was created by Centigram
Communications Corporation. The Company distributes its services through two
primary types of accounts, national accounts and corporate/retail accounts.
Approximately 60% of the Company's revenue is derived from Voice-Tel's
national accounts. One of the largest user groups of Voice-Tel services is
the Amway Corporation ("Amway") through its independent distributors.
Voice-Tel messaging service is marketed under the name "Amvox" to Amway
distributors. In addition, more than one million Amway distributors are
authorized to resell Voice-Tel services to their customer bases. Any
compensation paid to the Amway distributors for resale of Voice-Tel services
is paid by Amway. Amway pays the Company the same rate for its services
whether they are sold to Amway distributors or to end users by Amway
distributors. Voice-Tel also has a national account agreement with Century 21
Real Estate to provide voice messaging services to real estate brokers across
the nation that are affiliated with Century 21. Additionally, Voice-Tel has
national account agreements with other large companies
including Mailboxes, Etc., Primerica Financial Services, Discovery Toys,
Norwest Mortgage, Centigram Communications Corporation, Val Pak, Inc.,
National Safety Associates ("NSA"), Traveler's Insurance Company, and Excel
Telecommunications, Inc.
Approximately 39% of the Company's revenue is derived from
corporate/retail accounts. The corporate accounts are corporations or
individuals who desire interactive messaging. Typically, these accounts
consist of local business persons such as real estate brokers or other
professionals who desire to communicate with their agents through this
medium. Primary targets for the service include companies with field sales
and service forces.
The Company believes that in certain areas various industries tend to
become interdependent on the Voice-Tel system, which causes related parties to
join the system. For example, many Realtors use the system. The addition of
local mortgage brokers, banks, real estate lawyers, title companies, surveyors
and local zoning agencies could enhance the business of all of these customers.
Debit Cards
The Company is presently investigating the potential for distributing
debit cards to the public through contracts with national common carriers,
whereby the Company would purchase long distance telephone time at high volume
usage wholesale rates and resell this time to its customers at its own
discounted retail rates (which are believed to
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be 10% to 60% below the AT&T tariffed rates). This plan of distribution
benefits customers because the Company can eliminate the surcharges typically
imposed by the major long distance carriers. The Company is presently
negotiating with a number of providers of telephone switching equipment in
order to be able to produce, issue and sell telephone debit cards.
Competition
General
The voice messaging market, which includes voice mail and other voice
processing services, and the debit card market is fragmented, but highly
competitive due principally to the number of providers of telecommunications
services, certain of which have greater financial resources and more
experience than the Company. The costs and features of voice processing
equipment vary widely and the Company believes that the primary factor
governing the acceptance of a system is the ease of use or "user friendliness"
of the system.
Competition among National Network-Based Voice Message Service Providers
The Company views the voice processing industry as presently divided into
two segments. The first segment consists of companies that are voice
processing service providers of national and international network based voice
messaging services. The second segment consists of the Regional Bell Operating
Companies voice mail (call coverage) services. The first segment is considered
by the Company as its primary competition at the present time.
The Company views three entities as the national voice messaging service
providers, Octel (ONS), Voicecom, and Voice-Tel Enterprises, Inc. (VTE). ONS
and VoiceCom have historically targeted multi-location business accounts. Many,
if not most, of their customers have a CPE voice mail platform (or a CPE PBX
with a voice mail option) at their headquarters. These size companies use their
CPE voice mail for call answering, intra-office messaging and, perhaps, use
automated attendant features. VTE's customer base does not fit the above
description in that it has many single mailbox customers in addition to
corporate accounts. Voice-Tel has not historically targeted the very large,
multi-location accounts as have the other nationals.
The nationals' typical business customer has branch offices and/or field
personnel. The cost to purchase a voice mail platform can not easily be cost
justified for small branch offices. Cost aside, local branch voice mail
systems do not permit voice messaging with the home office. The nationals have
sold to large users as well as smaller to mid-size accounts. A smaller account
may not have branch offices but, rather field personnel dispersed around the
country. Some or many of the field personnel may work from their homes.
The convenience of 800 access is apparent to field sales, service and
work-at-home personnel, and traveling executives. Local access (with telco
local calling charges) is generally less expensive than 800 usage, but
requires change at public pay phones, calling cards and/or increased charges
on phone bills in areas that do not offer flat charge calling programs.
The disadvantage of 800 access is additional cost and variable monthly usage
charges.
The Company believes that the power of the network-based message services
is the ability to message and exchange information from one location to
another regardless of time zones and other field conditions. Sales personnel
can determine inventory
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availability, report sales, or inquire if an order has been shipped. Service
personnel can report service problems, or request replacement parts.
Executives can receive and dispense important and timely information with a
single call.
The nationals' service offerings can be used as call answering by
forwarding callers on "busy" or "no answer" conditions from small offices or
home numbers. As for the alternative, local RBOC voice mail can be used for
simple call answering. The shortcoming of using RBOC call answering for the
mid-size to large customer is the inability to pass an important message to
headquarters for follow-up; a simple task on a network-based message service.
The ability to create a message and have it delivered to many people at
several locations, and to answer a message (perhaps attaching additional
comments to it and passing it on to other users on the network) are not
possible on today's RBOC call answering voice mail services. Prior to the new
Telecom law, the RBOCs were prohibited from message transport outside of their
local service area.
The recently passed telecom legislation in Congress will allow the RBOCs
into long-distance services. The Company expects the RBOCs, either through
the landline networks or through their wireless ventures to initiate
nationwide messaging services.
ONS, (previously Tigon), and VoiceCom have added many features and
capabilities to enhance the value of the basic voice mail services offered to
businesses. Voice-Tel has taken a different approach by offering a no frills,
easy to use, voice mail network with local access in all major metropolitan
areas throughout the contiguous United States. Voice-Tel is also the exception
to the other nationals in that the company has many single mailbox customers.
In RBOC terms, these single mailbox customers would be called
residential customers. A large percentage of Voice-Tel's customers are Amwav
distributors who commonly work from their homes. Amway distributors can sell a
voice mail product called Amvox through a distribution agreement between
VoiceTel and Amway. VoiceTel also has many multi-location business accounts
sold by the local franchisees such as the Company.
Limitations on Today's Voice Messaging Systems
The existing voice mail message networks all have limited access.
Voice-Tel currently has the greatest local access coverage with approximately
3500 cities in the United States. However, what remains to be developed is a
truly ubiquitous network. This would include two key elements, as is the case
with fax machines: (1)Local access from any telephone number (to avoid costly
800 usage); and (2) The ability to exchange messages from one voice mail
platform to any other voice mail platform.
Specific Competitors
Octel Network Services
Octel Network Services (ONS) is the successor to Tigon. Tigon was founded
in 1983 as a spin-off of VMX. VMX had originally used a service approach to
give prospective CPE customers an opportunity to become familiar with voice
mail before committing to a large capital investment.
Historically, Tigon's expertise was in the sale of voice message
networking applications to Fortune 1000, multiple-site accounts. Its flagship
accounts included Bank
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of America, Ford Motor Company and Ford Dealerships, Kodak, Kraft and Texas
Instruments. These accounts represented 75% of its total number of mailboxes.
Tigon practiced a non-vertical marketing approach. It considers any
large, multi-location company, especially with international needs, to be a
prime target. Tigon had sales success in approaching its accounts' vendors
and customers in order to capture their network messaging such as the Ford
Dealerships.
Ameritech purchased Tigon in October 1988 for an amount believed to be
$40 million. Tigon operated as a separate subsidiary during its time with
Ameritech and was subject to the regulatory restraints imposed on the RBOCs.
Ameritech concentrated its residential voice mail efforts in Chicago and
Indianapolis. It should be noted that Tigon's positive sales results with
business accounts did not offer any value in selling to residential
customers. After three years, Ameritech reported a total of 10,000
residential voice mailboxes.
In September 1992, Octel purchased Tigon from Ameritech for less than
book value, reportedly $12 million. Tigon's annual revenue at the time was
approximately $20 million. Under the terms of purchase, Tigon was to continue
to provide Ameritech with residential voice mail and business voice processing
services using Octel Sierra central office (CO) hardware. Tigon was also to
continue to provide customer service and customer support for Ameritech's
business and residential accounts. Under the terms of the agreement between
Octel and Ameritech, the Tigon business accounts stayed with Tigon, a wholly-
owned subsidiary of Octel Communications. The 10,000 residential mailboxes
remained with Ameritech. Tigon continued to support customers on the Octel
Sierra platforms and on the original VMX5000 platforms.
Tigon, now known as Octel Network Services (ONS), continues to support
the Ameritech customers and its existing business customers, including several
state and local governments. In addition to its corporate accounts, ONS has
25 distributors that resell its services, including telcos, InterExchange
Carriers (IXCs), and Telemanagement companies, under private brand names.
Domestic sales activity represents 99% of total sales revenue. However,
business alliances, originally formed by Tigon, remain in place in Japan,
Australia, Canada, and UK/Europe.
New ONS sales activity is being handled by the Octel national sales force
seeking new corporate accounts and/or to upgrade existing accounts. ONS
continues to seek new distributor agreements with telcos, IXCs and other types
of resellers. ONS has local access available in 24 US cities and 12 countries.
As a result of recent strategic acquisitions, many industry analysts
believe that Octel will remain the dominant player in the field. AT&T, Nortel
and Centigram all have significant success in the sale of CPE voice mail
platforms, but do not have a voice mail network in place.
Octel has a range of small to very large platforms for CPE and CO sales.
With the acquisition of Tigon, Octel gained considerable expertise in network
management, facilities management and outsourcing services. Octel is in an
excellent position, being the only major voice mail manufacturer with an
implemented message network in place with an embedded customer base.
<PAGE>
Octel, should it choose, has the in-house intelligence and financial
resources to develop and market a truly universal message network. AT&T
certainly has the capability and resources to implement a network, but may
lack the motivation to do so, fearing potential loss of long-distance revenue.
The critical step in implementing a universal network will be the
development of software to facilitate inter-machine operability with all the
major voice mail platforms. The audio messaging interchange specification
(AMIS) analog, a standard for networking voice mail systems, is within easy
reach, but would lack feature-rich functionality expected in the business
marketplace. A digital solution would be ideal, as it could provide greater
functionality and quality.
A universal network developed by Octel, or another vendor, will open new
revenue streams, just as facsimile compatibility did many years ago. The
opportunities include businesses, affinity groups and consumers with extended
families. In addition to direct sales, Octel's distribution channels such as
telcoÕs and other resellers would benefit from a universal network by
opening new applications and sales possibilities.
VoiceCom Systems, Inc.
VoiceCom is a privately-held company founded in 1984. In January 1991,
VoiceCom acquired Wang Information Services. In September 1992, they bought
Async from MCI. For several years, VoiceCom was the e exclusive sales agent
for AT&T's voice mail services. VoiceCom marketed and supported AT&T Audix
customers that preferred a service solution to the purchase of CPE voice mail.
The relationship ended in 1993. The AT&T CPE sales force may have found it
difficult selling against their own product.
In its early days, VoiceCom's services and marketing strategy closely
resembled Tigon's. They targeted multiple-site accounts with a need for voice
mail and messaging. VoiceCom had success with medium-size companies with
dispersed personnel and about a dozen large accounts.
As a result of the merger activity, VoiceCom found itself with a number
of different platforms (none of which were integrated, although all were
capable of AMIS analog) including Audix, VMX, Centigram and Octel Maxxum.
In recent years, with the acquisition of Async in late 1992, the Company
believes that VoiceCom has positioned itself to be an enhanced voice mail
service provider with AccessOne. The service allows the user to dial a single
800 number. From that point on, using menu options, the caller can complete
a number of actions including Voice messaging; Fax and information services;
Custom calling; Multiple long-distance calls; International calls - outbound,
inbound and callback; and Conference calls.
Management believes that VoiceCom now targets companies with field
personnel. Armed with private, public or cellular touch tone phones, personal
digital assistants (PDAS) and laptops, the mobile professional can work from
an automobile and/or home, eliminating the necessity for small regional branch
offices. The cost of PDAs and laptop computers can be easily cost justified if
a company can lower overhead by shutting down expensive field sites.
For corporate headquarters, VoiceCom offers AccessOne Premise, which
involves installing equipment on the customers' premises. This product
appears to appeal primarily to low-end and high-end users, assuming the
mid-size company can cost-justify and maintain CPE voice mail.
<PAGE>
VoiceCom customers use 800 access in the US and international access in 50
countries.
In the past, it is Management's opinion that industry analysts believed
that VoiceCom lacked focus because of its merger activity, multiple platforms
and products, and effort to be all things to all market niches. The company's
recent emphasis on AccessOne, embracing the old Async product, could give
VoiceCom the focus that has been missing. VoiceCom's service is distinctly
different from ONS and Voice-Tel. With the shifting economy forcing companies
to operate more efficiently, and given the increasing acceptance of
telecommuting, the "onecall" AccessOne enhanced voice mail service could prove
to be more successful now and in the near future than when Async originally
introduced it in 1984.
According to industry sources, in mid-1994 VoiceCom had 150,000 mail
boxes and Tigon had 180,000 mail boxes, while Voice-Tel had 300,000. At the
end of 1995, Voice-Tel had approximately 450,000.
The Company believes that the most significant difference between its
system versus that of its competitors is that the Company's service operates
through local access numbers and provides the ability to connect its voice
mail boxes to a customers home phone, car phone, office phone or local beeper
while offering the extensive networking services such as broadcast messaging,
which enables a message to be sent to many recipients with one call. However,
there can be no assurance that the Company will be able to continue to
effectively compete with its many competitors.
Dependence on few major customers
The Company's revenues are primarily derived from two types of voice
messaging accounts, Voice-Tel national accounts, and corporate/retail
accounts. The national accounts comprise approximately 60% of the Company's
revenues, and consists primarily of independant distributors for multilevel
marketing companies, such as Amway. Amway accounts for approximately 58% of
the Company's total revenues. Corporate/retail accounts comprise
approximately 39% of the Company's total revenues, and are typically made up
of a number of different corporations or individuals who desire interactive
voice messaging. There is no individual corporate/retail account that
represents in excess of 10% of the revenues of the Company. See
"Management's Discussion and Analysis."
Trademarks
The Company has filed for federal trademark protection of the name and
logo of "Communications/USA, Inc." and is preparing to file for various
calling card names for its debit cards.
Employees
The Company employs a total of nine (9) employees, all of which are full
time.
Item 2. Management's Discussion and Analysis
Presently, the Company's source of income is from the sale of Voice-Tel
services, with a small amount of income generated by the sale of pagers. The
national accounts
<PAGE>
comprise approximately 60% of the Company's revenues. A typical account in
this category is a multilevel marketing company. The largest national
account, Amway, purchases a block of telephone numbers from the Company and
then re-sells them to its independent distributors. All the incidentals of
billing and collections are handled by Amway, with the Company receiving its
revenues on a monthly basis. Service issues are handled by the Company. The
other national accounts are handled in the same manner as the Company's
corporate/retail accounts, which means that the Company bills the end user,
collects from the end user and provides customer service to the end user.
The Company's business is primarily derived from two types of voice
messaging accounts, Voice-Tel national accounts, and corporate/retail
accounts. The Company expects to provide in excess of $1,000,000 in
interactive voice messaging services to these accounts during the present
fiscal year.
The corporate/retail accounts typically comprise of corporations or
individuals who desire interactive voice messaging. An example would be a
local real estate broker who desires to be able to communicate with his/her
agents through this medium. The other major target market is for companies
with a field sales and service force.
The Company raised approximately $650,000 through the sale of securities,
the proceeds of which were used to pay the costs of the offering, and to
purchase the stock of Gulf Coast Communications, Inc. The Company presently
has no credit facilities. Accounts Receivable exceeded the revenues for the
reported period because due to the inclusion of short term advances to a
shareholder. These advances have been recovered in the subsequent periods.
In February 1996, the Company obtained a rate adjustment from its local
telephone provider to more closely match the rates enjoyed by paging
companies. Due to this favorable rate adjustment, the Company will experience
a substantial reduction in telecommunications costs for 1996, which the
Company anticipates to equal approximately $150,000 during 1996.
Presently, the Company's cash flow is adequate to meet its operating
expenditures for the next 12 months and management expects that the reduced
telecommunications costs will make a positive significant impact on the
Company's cash position over the next twelve months.
Presently, the Company does not expect to make any significant capital
expenditures, although some are necessary to take full advantage of the
expected reduced Telecommunications costs. At this time, however, no final
plans have been made for these expenditures.
In the event that Company concludes any agreements to acquire additional
companies, it will need to raise additional funds through sale of either debt
or equity. Any such amounts are not determinable at this time.
In order to accomplish its sales goals, the Company will be required to
add sales employees. Management anticipates approximately two new sales
positions to be created during the next fiscal year.
Since the Company acquired its operating entities late in 1995, pro forma
results of operations giving effect to the transaction as if it had occurred
at the beginning of
<PAGE>
the year ended 12/31/95 have been included in the Company's financial
statements section (See "Part F/S"). These pro forma results of operations
include revenues of approximately $805,000 for the period, and costs of sales
of approximately $244,000. Due to start up costs of the partnet Company, and
due to the non-cash amortization expenses of approximately $230,000, plus
increased interest expenses due to properly accounting for capitalized leases,
the Company showed a loss of $293,000.
Item 3. Description of Property.
The Company's principal executive office is located at 2240 Woolbright
Rd., Suite 336, Boynton Beach, FL 33426, where the Company leases
approximately 500 square feet of office space on a month-to-month basis at
prevailing market rates.
The Company's principal operating subsidiary is located at 4175 East Bay
Dr., Suite 260, Largo, FL 34624-6965, where the Company leases approximately
1,210 square feet of office space at prevailing market rates, pursuant to a
three year lease which commenced on June 6, 1994, and terminates on May 31,
1997.
The Company operates an equipment site at 2701 Cleveland Ave., Unit 11,
Fort Meyers, FL. This space is leased at prevailing market rates pursuant to
a five year lease which commenced on August 15, 1995, and terminates on August
14, 2000.
The Company operates a sales office and equipment site at 1717 Second
Street, Suite E, Second Floor, Sarasota, FL 34236, where it leases
approximately 800 square feet of space at prevailing market rates, pursuant
to a five year lease which commenced on July 1, 1992, and terminates on June
30, 1997.
The Company presently operates an equipment site, and intends to operate
a sales office, at 12807 Hillsborough Avenue, Tampa, FL 33615, where it leases
approximately 660 square feet of space at prevailing market rates, pursuant to
a five year lease which commenced on July 14, 1994, and terminates on July 13,
1999.
Operation of an equipment site means that the Company operates
telecommunications equipment, such as Centigram equipment or telephone trunks
and lines, at different locations. The Company does not resell telephone or
computer equipment, but uses this equipment to provide its services.
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth the number of shares of the Company's common
stock, beneficially owned as of the date of this registration statement, by
the officers and directors and 5% shareholders of the Company:
<TABLE>
<CAPTION>
Name and Address of Number of Shares Position Percent of
Beneficial Owner Ownership
(1)(4)(5)
<S> <C> <C> <C>
Robert C. Hackney &
Cyndee W. Hackney 2,550,000 Dir., C.E.O. 59.0%
2240 Woolbright Rd.,
Suite 336, Boynton
Beach, FL 33426(2)
Robert B. Feiman 500,000 Exec. V.P. 11.5%
4175 East Bay Dr., Suite 260
Largo, FL 34624-6965(3)
James B. and 62,500 C.O.O 1.4%
Ruth A. Holliday V.P.-Operations
4175 East Bay Dr., Suite 260
Largo, FL 34624-6965(4)
All officers and directors 3,112,500 71.5%
as a group(4)(5).
____________________________
</TABLE>
(1) Assumes full conversion of all 23,750 shares of outstanding 14%
Convertible Preferred Stock into common stock, on the basis of one share of
common stock for one share of preferred stock. Does not assume the issuance of
additional shares in potential acquisitions.
(2) All 2,550,000 shares are owned by Net Lnnx, Inc., a Pennsylvania
corporation, of which Mr. Hackney and his wife, Cyndee W. Hackney, jointly
own approximately 83.5%.
(3) All 500,000 shares are owned jointly with Mr. Feiman's wife, Roberta
Feiman.
(4) Does not include 250,000 shares to be issued jointly to Mr. and Mrs.
Holliday as joint tenants with rights of survivorship in connection with the
Gulf Coast acquisition. 125,000 shares are issuable on December 1, 1996, and
125,000 shares are issuable on December 1, 1997. The acquisition agreement
provides for a total issuance of 250,000 shares or 2.5% of the issued and
outstanding shares, whichever is greater.
(5) Includes 50,000 options issued pursuant to the Company's 1995 Employee
Stock Option Plan.
Item 5. Directors, Executive officers, Promoters, and Control Persons.
Directors and Officers
The following table sets forth certain information with respect to the current
director and officers of Communications/USA, Inc.:
Name Age Position Held
Robert C. Hackney 46 Chief Executive Officer
and Director
Charles Laser 60 Director
Charles Sobolewski 57 Director
Raul E. Balsera 47 Chief Financial Officer
Robert B. Feiman 50 Executive Vice President
James B. Holliday 58 Chief Operating Officer
Ruth A. Holliday 58 Vice President-Operations
The following is a brief account of the business experience and the
educational background of the officers and director of the Company:
Robert C. Hackney, 46, has been a director of the Company since its
inception in December, 1992 and has also served as its Chief Executive Officer
since inception. He has served in a full time capacity with the Company since
February 1995. He will be in charge of implementing the Company's
acquisition strategy. For nearly two decades his corporate and securities law
practice has included public and private securities offerings, mergers and
acquisitions, tender offers, and complex corporate transactions. From 1988
until 1995, Mr. Hackney was a partner in the law firm of DeSantis, Gaskill &
Hunston P. A., in North Palm Beach, Florida. He is a former securities fraud
prosecutor and state securities regulator. He also serves on the Board of
Directors of Micro Typing Systems, Inc., a company in the medical products
industry. Mr. Hackney is a member of The Florida Bar, the United States
District Court, Southern District of Florida, the United States District
Court, Middle District of Florida, the United States Court of Appeals for the
Fifth Circuit, and the United States Court of Appeals for the Eleventh Circuit.
He has lectured and authored several books in the area of corporate and
securities law, including "The Complete Guide to Mergers & Acquisitions,
"(1989), "An Insider's Guide to Non-Bank Business Financing" (1990), and
"Firesale! Advice on Buying Financially Distressed Companies" (1991).
Mr. Hackney is a member of United States Senator Connie Mack's Senate
Roundtable and is listed in the Who's Who Registry.
Charles Laser, 60, has been a director of the Company since March, 1996.
Mr Laser is the President of Laser Exploration, Inc., and oil and gas
exploration and consulting company, a position he has held for over ten years.
Mr. Laser was Executive Vice President of GeoSpectra Corporation, a leading
firm in geological remote sensing, serving the major oil and mining firms
worldwide, including Exxon, Amoco, Arco, Texaco, and Mobil. He is the former
Executive Director for the Republican Party of the District of Columbia,
Washington, D.C., Former Finance Director of the San Joaquin Republican Party,
Stockton, California and the Former Executive Director of the Saginaw County
Republican Party of Michigan. Mr. Laser is the Past President of the Boca
Raton Men's Republican Club, former Vice President of the Deerfield Beach
Chamber of Commerce and a current member of the Governor's Juvenile Justice
Committee for the State of Florida. He is an Advisory Board Member of the
Humanitarian Society in Boca Raton, Florida and a Member of the Industrial
Bond Screening Committee for the City of
<PAGE>
Deerfield Beach, Florida. Mr. Laser served as the Chairman of U.S. Senator
Connie Mack's Palm Beach County Round Table from 1991 until 1994. He is a
Member of the Board of Directors of the Boca Pops Orchestra, a Member of the
Executive Board of Directors of the Palm Beach Round Table, and a Director of
the Boca Raton Round Table. Mr. Laser served as President of the Michigan
Freedom Forums and is a Life Member of the Freedoms Foundation at Valley
Forge. He serves on additional community service, civic and social
boards and committees.
Charles Sobolewski, 57, has been a director of the Company since March
1996. Mr. Sobolewski is the Chief Executive Officer of Micro Typing Systems,
Inc., a Florida based medical products company that manufactures a patented
blood system which is distributed by Johnson & Johnson. Mr. Sobolewski is the
founder and has been the Chief Executive Officer of Micro Typing Systems, Inc.
since 1988, and has been active in the blood testing industry for thirty years.
From 1979 to 1988 her was the President of Invitro Exports, Inc., a diagnostic
laboratory export company, and simultaneously served as Vice-President of
Continential Medical Group, Inc. in Miami, Florida. From 1976 to 1979
he served as Executive Vice President of North American Biologicals, Inc. From
1973 to 1976 Mr. Sobolewski was General Manager and Director of Sales at
Spectra Biologicals and from 1970 to 1973 was National Slaes Manager for
American Dade (Baxter). From 1956 to 1970 he held various positions in the
medical industry. Mr. Sobolewski holds degrees from the University of
Pittsburgh in Pittsburgh Pennsylvania, and Saint Fidelis College in Herman,
Pennsylvania.
Raul E. Balsera, 47, has been the Chief Financial Officer of the Company
since April, 1995, and has served as President of the Company's subsidiary,
CommTel/USA, Inc. since September 1995. Mr. Balsera will not only oversee all
financial matters for the operating subsidiaries, but will be a key member of
the acquisition team. Mr. Balsera has been a Certified Public Accountant since
1973, starting his career with the big eight accounting firm of Arthur Andersen
& Co. From 1980 until 1984 he was the Manager of General Accounting and
Contract Administration at Sensormatic Electronics Corporation, a Florida based
public company. For two years he served as Chief Financial Officer of Bio-
Analytic Laboratories, another publicly held Florida company. Mr. Balsera spent
three additional years at Sensormatic as Director of Marketing Administration,
where he was responsible for the administrative and financial functions of the
Sales and Marketing departments. Since 1991 he has been practicing public
accounting, concentrating on corporate taxation and Securities & Exchange
Commission financial regulatory consulting. Mr. Balsera is a member of the
National Association of Tax Professionals, the Florida Institute of Certified
Public Accountants and the American Institute of Certified Public Accountants.
Mr. Balsera obtained his Bachelor of Business Administration degree in
Accounting and Management from Florida Atlantic University.
Robert B. Feiman, 50, has served as Executive Vice President of the
Company's subsidiary, CommTel/USA, Inc. since September 1995. Mr. Feiman's
experience in the interactive voice messaging market includes opening the
Tallahassee market. In Tallahassee, he designed, developed, introduced, and
implemented niche market programs directed towards the unique market of
Florida's capital city. His duties include the opening of the Company's new
territories that have never had Voice-Tel service available, as well as
assisting in the assimilation of acquired operating territories. In addition,
he is in charge of managing sales for the national account segment of the
Company's business. From 1985 until 1994 he was the President and Chief
Operating Officer of Potomac Crane Corporation, a construction equipment sales
and leasing service company. Mr. Feiman served in the United States Air Force
as a Fighter Intercept Director and thereafter obtained his Bachelor of
Science degree in Finance from Florida State University.
<PAGE>
James B. Holliday, 58, has been the President of Gulf Coast
Communications, Inc. d/b/a Voice-Tel of West Florida, since 1989, and has
served as Chief Operating Officer of CommTel/USA, Inc. since November 1995.
Mr. Holliday was one of the earliest of the Voice-Tel franchisees in a major
metropolitan area. The areas opened by Mr. Holliday and his wife, Ruth A.
Holliday include the cities of Tampa, St. Petersburg, Clearwater, Bradenton,
Sarasota and Largo. Mr. Holliday and his wife started the business before
Voice-Tel's national network was completed and prior to the establishment of
Voice-Tel's contract to provide service to Amway Corporation distributors. Mr.
Holliday's duties include oversight of all Voice-Tel franchise operations,
including marketing and technical support. Prior to founding Gulf Coast, Mr.
Holliday retired from a life long career in the tire and rubber industry,
working with such companies as Firestone Tire & Rubber Company, Dayton Tire &
Rubber Company and Mohawk Rubber Company. Mr. Holliday obtained his Bachelor
of Science degree in Industrial Management from Ohio State University.
Ruth A. Holliday, 58, has been the Vice-President of Gulf Coast
Communications, Inc. d/b/a Voice-Tel of West Florida, since 1989. Mrs.
Holliday has served as Vice President-Operations of CommTel/USA, Inc. since
November 1995. She has worked with her husband, James B. Holliday since the
founding of Gulf Coast and has been responsible for office operations. Her
duties include assisting the Chief Operating Officer with marketing and
technical support, and assisting the Chief Financial Officer with internal
accounting procedures, billing and financial organization. She is a member of
the American Women's Business Association, the Women Business Owners
Network and serves on various committees of her local Chamber of Commerce.
Item. 6. Executive Compensation.
Compensation paid or accrued by the Company for services rendered during
the last fiscal year by the Company's Chief Executive Officer, Robert C.
Hackney, equaled $28,000. No other executive officer's total annual salary
and bonus exceeded $100,000.
Employment Agreement
The Company has no Employment Agreement with Robert C. Hackney as Chief
Executive Officer of the Company.
The Company has entered into Employment Agreements with James B. Holliday
(Chief Operating Officer of ComTel/USA, Inc.) and Ruth A. Holliday (Vice
President-Operations of ComTel/USA, Inc.). Each of these contracts is for a
term of two years, commencing on November 28, 1995, and provide for (i) a
minimum base salary of $60,000, with annual upward adjustments to their base
salaries commensurate with their cost of living increases; (ii) health
insurance; (iii) use of a company car; and (iv) performance based bonuses which
shall be made at the discretion of the Board of Directors of the Company.
Communications/USA Employee Stock Option Plan.
The 1995 Communications/USA Employee Stock Option Plan (the "1995 ESOP")
was adopted by Comm/USA's Board of Directors on May 4, 1995 and was approved
by Comm/USA's shareholders on May 10, 1995. The 1995 ESOP provides for the
granting of options to purchase an aggregate of 250,000 shares of Comm/USA
Common Stock (subject to adjustment in certain events) to officers and other
employees of Comm/USA. The 1995
<PAGE>
ESOP is administered by either Comm/USA's Board of Directors or a committee of
disinterested directors appointed by the Board of Directors. It permits the
granting of stock options at an exercise price per share not less than the
fair market value per share of Comm/USA Common Stock on the date the option is
granted. The options, which expire at a maximum of 10 years from the date of
grant, are exercisable after the expiration of two years from the date of the
grant.
Compensation of Director
The directors of the Company serve without compensation for their
services as directors. The directors reimbursed by the Company for all
out-of-pocket expenses reasonably incurred by them in the discharge of their
duties as directors, including out-of-pocket expenses incurred.
Item 7. Certain Relationships and Related Transactions.
Transactions with Officers and Beneficial Owners
James Holliday and Ruth Holliday, have received payments in the amounts
of $325,000 and $75,000 and have received a promissory note in the amount of
$150,000, bearing interest at 7% per annum from the Company in connection with
the Company's acquisition of Gulf Coast. The $325,000 was paid on November 28,
1995, the $75,000 was paid on February 27, 1996. The $150,000 note is due on
February 27, 1998 with a holder's option for a balloon payment of the entire
amount on February 27, 2001. Additionally, the former Gulf Coast stockholders
have the right to receive an aggregate of approximately 125,000 shares of
Comm/USA Common Stock upon completion of their first year of employment with
the Company, and approximately 125,000 shares of Common Stock upon completion
of their second year of employment with the Company. Mr. and Mrs. Holliday
also received 62,500 shares of Comm/USA Common Stock pursuant to
the Asset Purchase Agreement dated October 23, 1995, between Comm/Tel and
Voice-Tel SWF.
Robert B. Feiman and his wife, Roberta Feiman, received 500,000 shares of
Comm/USA Common Stock and the sum of $30,000 in connection with the Asset
Purchase Agreement dated October 23, 1995, as amended, between Comm/Tel and
Voice-Tel SWF.
Parent Company
The Company's parent company, Net Lnnx, Inc., a Pennsylvania corporation,
owns 2,550,000 of the Company's Common Stock, which consists of approximately
60% of the Company. Mr. Hackney and his wife, Cyndee W. Hackney, jointly own
approximately 83.5% of Net Lnnx, Inc. See "Security Ownership of Certain
Beneficial Owners and Management."
Transactions with promoter.
The Company's promoter, Robert C. Hackney, incorporated the Company in
December, 1992, for which he received 2,550,000 shares of the Company's Common
Stock.
Item 8. Description of Securities.
The following descriptions of the Common Stock and the Preferred Stock
are based on the Company's Articles of Incorporation and all amendments
thereto, the Bylaws and applicable Florida law.
<PAGE>
Common Stock
The Company's Articles of Incorporation authorize the issuance of
50,000,000 shares of common stock with a par value of $.01 per share ("Common
Stock"). As of the date of this registration statement, there were 4,741,309
shares of Common Stock issued and outstanding. Each record holder of Common
Stock is entitled to one vote for each share held on all matters properly
submitted to the shareholders for their vote.
Holders of outstanding shares of Common Stock are entitled to those
dividends declared by the Board of Directors out of legally available funds;
and, in the event of liquidation, dissolution or winding up of the affairs of
the Company, holders are entitled to receive ratably the net assets of the
Company available to holders of Common Stock. Holders of outstanding shares
of Common Stock have no preemptive, conversion or redemptive rights. All of
the issued and outstanding shares of Common Stock are duly authorized, validly
issued, fully paid and non-assessable. To the extent that additional shares of
the Company's Common Stock are issued, the relative interests of then existing
shareholders may be diluted.
Non-Cumulative Voting
The holders of shares of Common Stock do not have cumulative voting rights,
which means that the holders of more than 50% of such outstanding shares can
elect all of the directors of the Company.
Dividends
The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board of Directors and will depend, among other things,
upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid any
dividends since its inception and does not intend to pay any dividends in the
immediate future, but intends to retain all earnings, if any, for use in its
business operations.
14% Convertible Preferred Stock
The Company's Articles of Incorporation authorize the issuance of
5,000,000 shares of 14% Convertible Preferred Stock, par value $3.75 per
share. As of the date of this registration statement, there were 23,750 shares
of 14% Convertible Preferred Stock issued and outstanding.
Dividends
The holders of shares of 14% Convertible Preferred Stock shall be
entitled to receive, out of any assets at the time legally available therefor
and when and as declared by the Board of Directors, dividends at the rate of
fourteen percent (14%) per share per annum, and no more, payable in cash
quarterly commencing on the first fiscal quarter after the 14% Convertible
Preferred Stock preferred shareholders shares are issued, and thereafter on
the last day of March, June, September, and December of each year that any
14% Convertible Preferred Stock shall be outstanding. Such dividends are
prior and in preference to any declaration or payment of any distribution on
the Common Stock of this Company.
Redemption
<PAGE>
At any time after December 31, 1996, the Company may, at the option of
the Board of Directors, redeem all or part of the outstanding shares of the
14% Convertible Preferred Stock at the redemption price. The 14% Convertible
Preferred Stock may be redeemed at a cash price equal to four dollars and
fifty cents ($4.50) per share, together with all declared and unpaid dividends
to and including the redemption date (the Redemption Price); provided,
however, that payment of the Redemption Price shall be made from any funds of
the Company legally available therefor.
Preferences on Liquidation
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of the Company, the holders of shares of the Class A Preferred
Stock then outstanding shall be entitled to be paid, out of the assets of the
Company available for distribution to its stockholders, whether from capital,
surplus or earnings, before any payment shall be made in respect of the
Company's Common Stock, an amount equal to Three Dollars Seventy Five Cents
($3.75) per share, plus all declared and unpaid dividends thereon to the date
fixed for distribution. After setting apart or paying in full the
preferential amounts due the holders of the 14% Convertible Preferred Stock
the remaining assets of the Company available for distribution to
stockholders, if any, shall be distributed exclusively to the holders of
Common Stock, each such issued and outstanding share of Common Stock entitling
the holder thereof to receive an equal proportion of said remaining assets.
If upon liquidation, dissolution, or winding up of the Company, the assets of
the Company available for distribution to its shareholders shall be
insufficient to pay the holders of the 14% Convertible Preferred Stock the full
amounts to which they respectively are entitled, then they shall share ratably
in any distribution of assets according to the respective amounts which would
be payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full. The
merger or consolidation of the Company into or with another corporation in
which this Company shall not survive and the shareholders of this Company
shall own less than 50% of the voting securities of the surviving
corporation or the sale, transfer or lease (but not including a transfer or
lease by pledge or mortgage to a bona fide lender) of all or substantially all
of the assets of the Company shall be deemed to be a liquidation, dissolution
or winding up of the corporation.
Voting Rights
The shares of 14% Convertible Preferred Stock shall have no voting rights
with regard to the election of directors or as to other matters except those
affecting the class. The Company may not take any of the following actions
without first obtaining the approval by vote or written consent, in the manner
provided by law, of the holders of at least a majority of the total number of
shares of 14% Convertible Preferred Stock outstanding, voting separately as a
class, to (i) alter or change any of the powers, preferences, privileges, or
rights of the 14% Convertible Preferred Stock; (ii) amend the provisions of the
Company's Articles of Incorporation granting the rights herein; or (ii) create
any new class or series of shares having preferences prior to or being on a
parity with the 14% Convertible Preferred Stock as to dividends or assets.
Conversion Rights
Each share of 14% Convertible Preferred Stock shall be convertible, at
the option of the holder thereof, at any time and on or prior to the fifth
(5th) day prior to a Redemption Date into fully paid and nonassessable shares
of Common Stock of the Company. Each share of 14% Convertible Preferred Stock
shall automatically be converted into fully paid and nonassessable shares of
Common Stock of the Company one
<PAGE>
hundred eighty days after the first date on which the Company's Common Stock
becomes publicly traded. For purposes of this section, publicly traded shall
mean the initiation of quotations or the publication or submission by a
securities broker or dealer of a quotation in any quotation medium or
interdealer quotation system.
The Conversion Ratio per share at which shares of Common Stock shall be
initially issuable upon conversion of any shares of 14% Convertible Preferred
Stock shall be one for one, subject to adjustment in the event that the
Company shall at any time subdivide the outstanding shares of Common Stock, or
shall issue a stock dividend on its outstanding Common Stock, then the
Conversion Ratio in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately increased,
and in case the Company shall at any time combine the outstanding shares of
Common Stock, the Conversion Ratio in effect immediately prior to such
combination shall be proportionately decreased.
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER'S MATTERS.
The Company's Common Stock is not presently traded on any market or
markets. The Company's Common Stock is subject to the following:
a. 50,000 options are presently issued pursuant to the Company's
1995 Employee Stock Option Plan. Under this plan, the Company is authorized
to option to the Company's employees an aggregate of up to 250,000 shares of
the Company's Common Stock;
b. 5,000,000 shares of 14% Convertible Preferred Stock, par value
$3.75 per share are presently authorized for issuance pursuant to the
Company's Articles of Incorporation. As of the date of this registration
statement, 23,750 shares of 14% Convertible Preferred Stock are issued and
outstanding.
The conversion ratio per share at which shares of Common Stock shall be
initially issuable upon conversion of any shares of 14% Convertible Preferred
Stock shall be one for one, subject to adjustment in the event that the
Company shall at any time subdivide the outstanding shares of Common Stock, or
shall issue a stock dividend on its outstanding Common Stock, then the
conversion ratio in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately increased, and in case
the Company shall at any time combine the outstanding shares of Common
Stock, the conversion ratio in effect immediately prior to such combination
shall be proportionately decreased. See "Description of Securities - 14%
Convertible Preferred Stock."
As of the date of this registration statement, approximately 4,741,309
shares of Common Stock will be outstanding, of which 4,655,509 shares are
"restricted"securities, as such term is defined under the Securities Act of
1933, as amended ("Securities Act"). The Company has not agreed to register
under the Securities Act any shares of any class of its stock for any of its
security holders.
In general, Rule 144 (as presently in effect), promulgated under the
Securities Act, permits a shareholder of the Company who has beneficially
owned restricted shares of Common Stock for at least two years to sell without
registration, within any three-month period, such number of shares not
exceeding the greater of 1% of the then outstanding shares of Common Stock or,
if the Common Stock is quoted on Nasdaq, the average weekly trading volume
over a defined period of time, assuming compliance by the Company with certain
reporting requirements of the Securities Exchange Act of 1934, as amended.
Furthermore, if the restricted shares of Common Stock are held for at
least three years by a person not affiliated with the Company (in general, a
person who is not an executive officer, director or principal shareholder of
the Company during the three-month period prior to resale), such restricted
shares can be sold without any volume limitation.
As of the date hereof, 600,000 shares of the Company's Common Stock
currently outstanding will have been deemed held by non-affiliates of the
Company for at least three years, and consequently are available for resale
under Rule 144. Additionally, the Company sold 85,800 shares of Common Stock
in a private offering pursuant to Rule 504 of Regulation D promulgated under
the Securities Act, and such shares are "not
<PAGE>
restricted" securities, and consequently are available for resale. See
"Recent Sales of Unregistered Securities." As of the date of this registration
statement, no shares of the Company's Common Stock is being or is proposed to
be publicly offered.
The Company has not paid any dividends since its inception. The Company
does not intend to pay any dividends in the immediate future, but intends to
retain all earnings, if any, for use in its business operations.
ITEM 2. LEGAL PROCEEDINGS.
Presently, the Company is not a party to, and does not anticipate being
named as a party to, any pending legal proceeding, nor is any of its property
the subject of a pending legal proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company has not, during its two most recent fiscal years, changed or
has had any disagreement with is principal independent accountant. The
independent accountant did not rely on any othe accountant's work or report.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In August, 1995, the Comm/USA issued a Private Placement Memorandum to
raise capital by offering up to 1,500,000 shares of its 14% Convertible
Preferred Stock. Comm/USA sold 23,750 shares of 14% Convertible Preferred
Stock to private individuals and trusts raising $89,062. The Company relied
upon Rule 505 of Regulation D promulgated under the Securities Act, in
addition to other applicable exemptions, for this transaction.
In September, 1995, the Comm/USA issued a Private Placement Memorandum to
raise capital by offering up to 130,000 shares of its Common Stock. Comm/USA
sold 85,800 shares of its Common Stock to individuals raising $643,500.
Comm/USA relied upon Rule 504 of Regulation D promulgated under the Securities
Act, in addition to other applicable exemptions, for this transaction.
In June, 1995, Comm/USA entered into agreements with two Florida
partnerships whereby the Company issued a total of 213,652 shares of Common
Stock to the said partnerships in exchange for all of the assets of said
partnerships. The principal business of the partnerships consisted of
acquiring licenses from the Federal Communications Commission to provide
interactive video and data services to the public. The total consideration in
this transaction aggregated $341,843. The Comm/USA relied upon Section 4(2)
promulgated under the Securities Act after considering the following factors:
(i) the number of offerees in the transaction was limited to two persons; (ii)
the size of the offering was small aggregating only $341,843; (iii) no
investment banker or other public distribution facilities were used to make
offers; (iv) restrictive legends were placed on the securities indicating that
such securities fall within the purview of Rule 144 under the Securities Act;
and (v) a former relationship existed between Comm/USA and the partnerships.
In October, 1995, Comm/USA issued 312,500 shares of its Common Stock and
paid cash in connection with an asset purchase/assumption of liability
agreement between COMM/TEL and Voice-Tel of SWF. The Comm/USA relied upon
Section 4(2) promulgated under the Securities Act for this transaction after
considering the following factors: (i) the number of offerees in the
transaction was limited to one person; and (ii) the size of
<PAGE>
the offering was small, aggregating $2,341,000, (iii) no investment banker or
other public distribution facilities were used to make offers; and (iv)
restrictive legends were placed on the securities indicating that such
securities fall within the purview of Rule 144 under the Securities Act.
In May, 1995, Comm/USA entered into an agreement with James B. and Ruth
A. Holiday, who are all of the shareholders of Gulf Coast whereby the Comm/USA
would acquire all of the shares of Gulf Coast in exchange for James B. and Ruth
A. Hollidays' collective right to receive 250,000 shares of its Common Stock
over a period of two years upon the completion of certain events. The
transaction closed in November, 1995. Comm/USA relied upon Section 4(2)
promulgated under the Securities Act for this transaction after considering the
following factors: (i) the number of offerees in the transaction was limited to
two persons; and (ii) the size of the offering was small, aggregating
$1,487,500; (iii) no investment banker or other public distribution facilities
were used to make offers; and (iv) restrictive legends were placed on the
securities indicating that such securities fall within the purview of Rule 144
under the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's bylaws contain the broadest form of indemnification for its
officers and directors and former officers and directors permitted under
Florida law, including provisions to indemnify the Company's directors,
officers, employees, and other agents against judgments, fines, amounts paid in
settlement, and other expenses in connection with threatened, pending or
completed suits, or proceedings against such persons by reason of serving or
having served as directors, officers, employees or agents of the Company,
except in relation to matters with respect to which they are determined to
have not acted in good faith, or in a manner which they did not believe
was in the best interest of the Company.
In addition, Florida law presently limits the personal liability of a
corporate director for monetary damages, except where the director (i)
breaches his or her fiduciary duties and (ii) such breach constitutes or
includes certain violations of criminal law, a transaction from which the
directors derived an improper personal benefit, certain unlawful
distributions or certain other reckless, wanton or willful acts or misconduct.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors and officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
<PAGE>
PART F/S
<PAGE>
COMMUNICATIONS/USA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
<PAGE>
COMMUNICATIONS/USA, Inc.
(A Development Stage Company)
TABLE OF CONTENTS
For the Period May 10, 1995 (Date of Inception)
to December 31, 1995
INDEPENDENT AUDITOR'S REPORT Front
FINANCIAL STATEMENTS
Consolidated Balance Sheet 1
Consolidated Statement of Operations 2
Consolidated Statement of Shareholders' Equity 3
Consolidated Statement of Cash Flows 4
Notes to Financial Statements 5
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Communications/USA, Inc.
Boynton Beach, Florida
I have audited the accompanying consolidated balance sheet of
Communications/USA, Inc. and Subsidiaries (a development stage company) as of
December 31, 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the period May 10, 1995 (date of
inception) to December 31, 1995 then ended. These financial statements are
the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of
Communications/USA, Inc. and Subsidiaries as of December 31, 1995 and the
results of its operations and cash flows for the period May 10, 1995 (date of
inception) to December 31, 1995 then ended in conformity with generally
accepted accounting principles.
Richard C. Gates, CPA
April 23, 1996
West Palm Beach, Florida
This page intentionally left blank.
<PAGE>
COMMUNICATIONS/USA, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 94,120
Accounts receivable 94,942
Other current assets 1,400
Total current assets 190,462
PROPERTY AND EQUIPMENT - Net 225,667
INTANGIBLE ASSETS - Net 3,910,495
$4,326,624
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt - banks $24,804
Obligations under capital leases - current 33,020
Current portion of long-term debt - shareholders 136,025
Accounts payable 26,164
Accrued expenses 28,528
Total current liabilities 248,541
LONG-TERM LIABILITIES
Long-term debt, less current portion 325,544
Obligations under capital leases, less current portion 79,962
Loans payable - shareholders, less current portion 150,615
Total long-term debt 556,121
Total liabilities 804,662
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock - 14% cumulative, convertible preferred stock,
$3.75 par value, 5,000,000 authorized, 23,750 issued & outstanding 89,062
Common stock - $.01 par value, 50,000,000 authorized,
4,601,131 issued and outstanding 46,011
Additional paid-in capital 3,543,452
Retained deficit accumulated during the development stage (156,563)
3,521,962
$4,326,624
See accompanying notes and accountant's report.
<PAGE>
COMMUNICATIONS/USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Period May 10, 1995 (date of inception) to December 31, 1995
OPERATING REVENUES $ 65,137
OPERATING EXPENSES 32,528
GROSS PROFIT 32,609
GENERAL and ADMINISTRATIVE EXPENSES 118,884
OTHER OPERATING EXPENSES
Depreciation 2,752
Amortization 13,945
OPERATING LOSS (102,972)
OTHER INCOME (EXPENSE)
Interest income 291
Interest expense ( 37,723)
Loss on disposal of asset ( 11,074)
( 48,506)
NET LOSS - accumulated during the development stage ($151,478)
Earnings (Loss) per share: ($0.04)
Weighted average number of common shares outstanding 3,708,627
See accompanying notes and accountant's report.
<PAGE>
<TABLE>
<CAPTION>
COMMUNICATIONS/USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Period May 10, 1995 (date of inception) to December 31, 1995
Additional Nature of noncash
Paid-In Cash Retained consideration & the
Preferred Stock Common Stock Capital Received Deficit Total basis for assigning
Shares Amount Shares Amount amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
05/31/95 Issuance of common stock $ 0 3,519,000 $35,190 ($ 35,190) $ 0 $ 0
06/30/95 Preferred stock issued
from a 506 private
placement memorandm 8,750 $ 32,812 $ 0 32,812 32,812
07/05/95 Orion I Partnership
acquisition 0 191,777 1,918 304,925 0 306,843 Increased addt'l
paid in capital
based on stock
value of $1.60
per share
07/21/95 Preferred stock issued
from a 506 private
placement memorandum 3,750 14,063 0 14,063 14,063
07/28/95 Orion II Partnership
acquisition 0 26,587 266 42,273 0 42,539 Increased addt'l
paid-in capital
based on stock
value of $1.60
per share
08/31/95 Preferred stock issued
from a 506 private
placement memorandum 5,000 18,750 0 18,750 18,750
10/02/95 Preferred stock issued
from a 506 private
placement memorandum 2,500 9,375 0 9,375 9,375
10/11/95 Preferred stock issued
from a 506 private
placement memorandum 1,250 4,687 0 4,687 4,687
10/15/95 Preferred stock issued
from a 506 private
placement memorandum 2,500 9,375 0 9,375 9,375
10/31/95 Issued common stock as
advance on purchase of
SW Florida 0 500,000 5,000 ( 5,000) 0 0 Common stock
valued at
$.01 per share
11/15/95 Common stock issued
from a 504 private
placement memorandum 0 31,567 315 222,714 223,030 223,029 Common stock
valued at
$7.05
11/28/95 Common stock issued
from a 504 private
placement memorandum 0 3,700 37 25,530 25,567 25,567 Common stock
valued at
$7.05
11/29/95 Acquired Gulf Coast
Communications, Inc. 0 250,000 2,500 935,000 0 937,500
11/29/95 Acquired Voice-Tel
of Southwest Florida,
Inc. 0 62,500 625 2,108,750 0 2,109,375
12/07/95 Common stock issued
from a 504 private
placement memorandum 0 1,500 15 10,218 10,233 10,233
12/14/95 Common stock issued
from a 504 private
placement memorandum 0 3,100 31 21,620 21,651 21,651
12/29/95 Common stock issued
from a 504 private
placement memorandum 0 11,400 114 82,052 82,166 82,166
12/31/95 Capitalized costs of
stock and private
placement issues 0 0 (169,440) 0 (169,440)
12/31/95 Net loss for period
- accumulated during
the development stage 0 0 0 (151,478) (151,478)
12/31/95 Preferred stock
dividend 14% 0 0 0 0 0 0 ( 5,085) ( 5,085)
23,750 $ 89,062 4,601,131 $46,011 $3,543,452 $451,709 $(156,563) $3,678,525
</TABLE>
<PAGE>
See accompanying notes and accountant's report.
COMMUNICATIONS/USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period May 10, 1995 (date of inception) to December 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($151,478)
Adjustments to reconcile net loss to net cash
used for) provided by operating activities:
Depreciation 2,752
Amortization 13,945
Accrued interest expense 4,709
Loss on sale of assets 11,000
Change in operating assets and liabilities:
Accounts receivable (46,034)
Other current assets (1,400)
Accounts payable and accrued expenses 32,001
Net cash used for operating activities (134,505)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (3,883)
Acquired intangibles (31,000)
Cash received when acquired companies net of
assets and liabilities 132,693
Net cash provided by investing activities 97,810
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan 200,000
Repay bank debt (1,401)
Repay debt to shareholder (342,500)
Repay lease obligations (2,467)
Proceeds from issuance of preferred & common stock 451,709
Stock issue costs (169,441)
Preferred stock dividends paid (5,085)
Net cash provided by financing activities 130,815
Net change in cash 94,120
Cash at beginning of year 0
Cash at end of year $94,120
SUPPLEMENTAL DISCLOSURES:
Cash flow information
Cash paid during the year for interest: $32,432
Non-cash financing activities
Capital lease obligations incurred for use of equipment $115,449
See accompanying notes and accountant's report.
<PAGE>
COMMUNICATIONS/USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Purpose - Communications/USA, Inc. (the "Company") was
organized under the laws of the State of Florida in 1992. It was dormant
until May of 1995 when it began to market its stock and negotiate to purchase
interactive voice messaging franchises and related companies.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries, Com/Tel, Inc.
and its subsidiary, Gulf Coast Communications, Inc. All significant
intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents - Represents actual balances in banks or invested
in liquid short term investments with maturities of three months or less when
purchased. All of the balances are owned by the company and are not
encumbered in any manner.
Concentration of Credit Risk - The Company extends credit to customers on an
unsecured basis in the normal course of business. One company, Amway, Inc.,
Ada, Michigan, represents a little over 50% of the income of the operating
subsidiaries of the Company. The Company has policies governing the extension
of credit and collection of amounts due from customers.
Impairment of Long Lived Assets - In March 1995, the FASB issued Statement
of Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of (FAS 121)." FAS
121 addresses the accounting for the impairment of long-lived assets, certain
intangibles and goodwill when events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. FAS 121 is required
to be adopted in 1996. The impact of FAS 121 has not been fully determined
but is not expected to have a material impact on the Company's results of
operations and financial position.
On an ongoing basis, management evaluates the recoverability of the net
carrying value of property, equipment and intangible assets by reference to
the Company's anticipated gross future cash flows generated by those assets
and comparison of carrying value to management's estimates of fair value,
generally determined by using certain accepted industry measures of value.
Property and Equipment and Intangible Assets - Property and equipment are
recorded at cost. Historical net carrying value is used in the case of assets
contributed or at appraised value in the case of assets obtained through
purchase of assets. The equipment is depreciated over its estimated useful
life. Repairs and maintenance are expensed.
Intangible assets are fees paid by one of the Company's subsidiaries to
operate a franchise of Voice-Tel in the Tampa/St. Petersburg/Clearwater area
and also Southwest Florida, goodwill, customer lists and various other
intangibles acquired in connection with the acquisition of various voice
messaging concerns. They are being amortized over their estimated useful
lives ranging from 15 to 20 years.
Income Taxes - Income taxes are provided for the tax effects of
transactions reported in the financial statements. No differences exist
between book and tax transactions. The Company accounts for income taxes in
accordance with FASB 109.
Earnings per Common Share - Earnings (loss) per common share was computed by
dividing net income applicable to common stock by the weighted average number
of shares of common shares outstanding during the period. There are no common
stock equivalents or other dilutive securities outstanding.
<PAGE>
B - DEVELOPMENT STAGE OPERATIONS
The Company is considered in its development stage as it has had no
significant income from operations as of the statement date. To date, the
efforts of management have been devoted to raising capital, and negotiating
the purchase of various operating companies.
C - ACQUISITIONS
On June 5, 1995, the Company acquired all of the assets of two Florida
Partnerships. These partnerships were in the business of acquiring licenses
from the Federal Communications Commission (FCC) to purchase air time to
provide interactive video and data services to the public.
The company exchanged 213,652 shares of its $.01 par value common stock for
all of the assets the partnerships. The total consideration aggregated
$341,843.
During 1995, the Company entered into an agreement to exchange, for an
aggregate price of $1,487,500 ($550,000 in cash or notes and 250,000 common
shares), all of the outstanding stock of Gulf Coast Communications, Inc., a
Florida Corporation ("GCC"). GCC was formed in 1989 to operate a Voice Tel
franchise in the Tampa/St. Petersburg/Clearwater area. The transaction has
been accounted for as a purchase. The transaction closed November 28, 1995
and only one month's operations were included in these financial statements.
For the first eleven months of 1995, GCC , a S corporation, had revenues of
$739,622 and net income before taxes of $70,573.
On October 23, 1995, the Company executed an asset purchase agreement between
Feiman and Holliday, Inc. (d/b/a Voice Tel of Southwest Florida). The assets
acquired include the franchise rights to Southwest Florida, related
telecommunications equipment, office equipment, and a real estate lease. In
exchange for assets valued at $2,340,000, the Company assumed approximately
$232,000 in debt and issued 562,500 shares of stock valued at $3.75 per
share. At the time of purchase Voice Tel of Southwest Florida had not begun
operations.
<PAGE>
D - PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment consisted of the following:
Computers, furniture and equipment $ 92,996
Voice messaging equipment - leased 135,423
228,419
Less accumulated depreciation 2,752
$ 225,667
Depreciation expense for the period ended December 31, 1995 was $2,752.
Intangible assets consisted of the following
Amortization
Life
Franchise costs 20 years $ 878,571
Customer lists 20 years 2,487,626
Goodwill 20 years 558,243
3,924,440
Less accumulated amortization 13,945
$3,910,495
Amortization expense for the period ended December 31, 1995 was $13,945.
E - LONG-TERM DEBT
The Company's long-term debt consisted of the following:
1. Commerce Atlantic, Inc. $ 205,000
2. Sun Trust of Florida, Inc. 69,448
3. V-T Franchise, Inc. 75,900
350,348
Less current portion of long-term debt 24,804
$ 325,544
1. Commerce Atlantic, Inc. - The loan is a bridge loan which is secured by
the Company's receivables and inventories. The loan carries an interest rate
of 6% per annum. The loan matures on the earlier of completion of a public
offering, completion of a private placement in excess of $500,000, or July 31,
1999.
<PAGE>
2. Sun Trust of Florida - The loan was assumed with the purchase of
assets of Voice Tel of Southwest Florida, Inc. secured by voice messaging
equipment. It is an installment loan with payments of $1,583 per month
including principal and interest at 10% for 60 months beginning December,
1995
3. V-T Franchise, Inc. - The loan is secured by the Voice Tel Franchise.
It is an installment loan with payments of $1,988 per month including
principal and interest at 10% for 48 months beginning December, 1995.
Interest expense for the period ending December 31, 1995 was $22,900. Annual
principal payments of long-term debt subsequent to December 31, 1995 are: 1996
$24,804; 1997 $31,027; 1998 $34,579; 1999 $243,542; 2000 $16,396.
F - RELATED PARTIES TRANSACTIONS
The Company owes $286,640 to various shareholders for purchase of stock of a
subsidiary and assets of a voice messaging company. The notes bear interest
ranging from 7% to 10%. Annual principal payments subsequent to December 31,
1995 are: 1996 $136,025; 1997 $38,032; and 1998 $112,583.
G - LEASE COMMITMENTS
The Company leased office space and certain telephone equipment under various
noncancelable operating and capital leases. The original term of the capital
leases are for a period of no less than 60 months and no more than 66 months.
Interest rates vary between 18% and 21%. The book value of lease equipment is
$133,166 at December 31, 1995.
The following is a schedule by years of future minimum lease payments under
the operating and capital leases together with the present value of the net
minimum capital lease payments as of December 31, 1995.
Operating Capital
Leases Leases
1996....................................$ 29,585 $ 53,264
1997.................................... 19,403 53,564
1998.................................... 10,695 43,047
1999.................................... 8,291 2,252
2000.................................... 4,400 -
$ 67,974 152,127
Less amount representing interest
and executory costs 39,145
Present value of net minimum lease
payments 112,982
Less current porion 33,020
$ 79,962
Interest expense for the obligations under capital lease in 1995 was $1,983.
Franchise Commitments - In addition to the initial franchise cost of
$75,000, the Company is obligated to pay monthly a royalty equal to 8% of
gross revenues. The Company also pays to the Franchisor 2% of gross revenues
to a marketing fund which the Franchisor manages and spends to advertise and
promote the Voice-Tel system.
<PAGE>
H - LOSS ON DISPOSAL OF ASSET
The Company bought certain assets from Network America, Inc., a
privately held corporation Of the assets purchased, $31,000 was allocated to
fixed assets. Subsequently, it was determined these assets were not useful to
the Company's operations and they were sold for $20,000 resulting in a loss of
$11,000. The consideration was a note receivable. Subsequent to December 31,
1995, the note was paid in full.
I - EMPLOYEE STOCK OPTION PLAN
The 1995 Employee Stock Option Plan (the "1995 ESOP") was adopted by the Board
of Directors of the Company on May 4, 1995 and was approved by the
shareholders on May 10, 1995. The 1995 ESOP provides for the granting of
options to purchase an aggregate of 250,000 shares of Communications/USA common
stock to officers and other employees of the Company. The 1995 ESOP is to be
administered by either the Company's Board of Directors or a committee of
disinterested directors appointed by the Board of Directors. As of December
31, 1995, no stock options had been granted by the Company.
J - INCOME TAXES
At December 31, 1995, the Company recorded deferred tax assets resulting from
net operating losses of $115,449 less a valuation allowance of $115,449. The
losses can be carried forward 15 years to the year 2010.
K- PREFERRED STOCK:
Pursuant to a Private Placement Memorandum, the company sold and issued 23,
750 shares of its 14% convertible preferred stock. The funds generated by this
issuance was used for working capital as well as expenses related to the
acquisition of subsidiaries
<PAGE>
GULF COAST COMMUNICATIONS, INC.
FINANCIAL STATEMENTS
Year Ended December 31, 1994 and 1993
<PAGE>
GULF COAST COMMUNICATIONS, INC.
TABLE OF CONTENTS
Years Ended December 31, 1994 and 1993
Pages
INDEPENDENT AUDITOR'S REPORT Front
FINANCIAL STATEMENTS
Balance Sheets 1
Statements of Operations and Retained Deficit 2
Statements of Cash Flows 3
Notes to Financial Statements 4
<PAGE>
Independent Auditor's Report
The Board of Directors
Gulf Coast Communications Inc.
Boynton Beach, Florida
I have audited the accompanying balances sheets of Gulf Coast Communications
Inc. as of December 31, 1994 and 1993, and the related statements of
operations, retained deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gulf Coast Communications
Inc. as of December 31, 1994 and 1993, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Richard C. Gates, CPA
January 4, 1996
West Palm Beach, Florida
<PAGE>
<TABLE>
<CAPTION>
GULF COAST COMMUNICATIONS, INC.
BALANCE SHEETS
December 31, 1994 and 1993
1994 1993
<S>
ASSETS <C> <C>
Current assets
Cash $4,861 $ 635
Accounts receivable 18,072 13,558
Other current assets 3,388 678
Total current assets 26,321 14,871
Property and equipment, net 206,250 221,221
Intangible assets, net 78,613 84,155
$311,184 $320,247
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt $ 28,676 $ 32,339
Current portion of capital leases 22,850 17,613
Accounts payable 6,003 977
Accrued expenses 2,360 2,266
Total current liabilities 59,889 53,195
Long-term liabilities
Loans payable, less current portion 74,387 103,063
Obligations under capital leases,
less current portion 133,140 136,406
Loans payable - shareholders 145,664 164,044
Total long-term debt 353,191 403,513
Total liabilities 413,080 456,708
Commitments and contingencies
Shareholders' deficit
Common stock 1,000 1,000
Additional paid-in capital 30,635 30,635
Retained earnings (133,531) (168,096)
(101,896) (136,461)
$311,184 $320,247
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
<TABLE>
<CAPTION>
GULF COAST COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS AND RETAINED DEFICIT
Years Ended December 31, 1994 and 1993
1994 1993
<S> <C> <C>
Operating income
Sales income $581,214 $407,187
Less cost of sales 185,187 152,634
Gross Profit 396,027 254,553
Operating expenses
Selling expenses 73,255 49,997
General and administrative 173,720 132,145
246,975 182,142
Income from operations 149,052 72,411
Other income (expense)
Interest expense (49,532) (44,730)
Depreciation and amortization (56,941) (34,419)
(106,473) (79,149)
Net income (loss) 42,579 (6,738)
Retained deficit
Beginning of year (168,096) (149,809)
Less distributions (8,014) (11,549)
End of year ($133,531) ($168,096)
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
<TABLE>
<CAPTION>
GULF COAST COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994 and 1993
1994 1993
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $42,579 ($6,738)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 56,941 43,591
Loss on disposal of intangible assets 0 54,500
Change in assets and liabilities
Accounts receivable (4,514) 3,827
Other current assets (2,710) (169)
Accounts payable 5,026 1,878
Accrued expenses 94 (1,146)
Net cash provided by operating activities 97,416 95,743
Cash flows from investing activities
Acquisition of equipment (16,844) (63,019)
Cash flows from financing activities
Debt reduction - banks (32,339) (23,660)
Reduction in capital lease obligations (17,613) 0
Proceeds from advance by related parties 10,000 5,538
Debt reduction - related parties (28,380) (14,460)
Distributions to shareholders (8,014) (11,549)
Net cash used by financing activities (76,346) (44,131)
Net increase (decrease) in cash 4,226 (11,407)
Cash at beginning of year 635 12,042
Cash at end of year $4,861 $635
SUPPLEMENTAL DISCLOSURES:
Cash flow information
Cash paid during the year for interest: $49,532 $48,944
Non-cash financing activities
Non-cash addition to debt $19,584 $91,254
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
DECEMBER 31, 1994
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Purposes - Gulf Coast Communications, Inc. (the "Company")
was organized under the laws of the State of Florida in 1989 to operate a Voice
Tel Franchise. The operations of the company include interactive messaging,
and remote paging capabilities, as well as selling personal pagers.
Accounts Receivable - The Company extends credit to its customers, generally
located in Western Florida, and performs ongoing credit evaluations. All
receivables are considered collectible and no allowance for bad debts is
provided.
Property and Equipment and Intangible Assets - Represents primarily the
telephone equipment necessary to operate the business of the Company and is
recorded at cost. Some of this equipment is leased under a capitalizable lease.
The Company has properly recorded the asset value and the corresponding
liability on its books in accordance with generally accepted accounting
principles.
Depreciation on these assets is computed over their useful lives. There are no
differences between tax and book depreciation.
Intangible assets consisted of a franchise fee paid by the Company for the
right to its present territory. The original fee was $75,000. The franchise
agreement is for 20 years and automatically renews for another like period of
time. The agreement is being amortized over the original length of the
agreement. The other intangibles consist primarily of a customer list
purchased by the corporation. The original cost was approximately $27,000,
and it is being amortized over 15 years.
Impairment of Loans - In May 1993, the Financial Accounting Standards Board
(the "FASB") issued Statement of Financial Accounting Standards No. 114
"Accounting by Creditors for Impairment of a Loan" (FAS 114) which addresses
the accounting for certain loans which may be deemed to be impaired. FAS 114,
as amended, is required to be adopted in 1995. The impact of FAS 114 has not
been fully determined but is not expected to have a material impact on the
Company's results of operations or financial position.
Impairment of Long Lived Assets - In March 1995, the FASB issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS 121).
FAS 121 addresses the accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. FAS 121 is required to be adopted in 1996. The impact of
FAS 121 has not been fully determined but is not expected to have a material
impact on the Company's results of operations and financial position.
<PAGE>
Income taxes - The Company has elected to be taxed as an S-Corporation under
the provisions of the Internal Revenue Code. Under such provisions, the Company
does not generally pay federal or state corporate income taxes. Therefore, no
provisions for income taxes have been made. Each individual shareholder is to
report their respective share of the Company's taxable income on their personal
federal income tax return.
Description of leasing arrangements - The Company conducts a major part of its
operations from leased facilities which include its office and 2 facilities
housing messaging and remote paging equipment. The lease terms expire over the
next five years. In addition, the Company leases vehicles and data processing
equipment under operating leases expiring during the next three years. In most
cases, the Company believes that, in the normal course of business, leases
will be renewed or replaced by other leases.
B - PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Office equipment $ 159,348 $ 147,748
Computers 2,083 1,050
Leasehold improvements - 1,330
Furniture and fixtures 5,232 2,351
Equipment under capital lease 170,844 151,260
337,507 303,739
less accumulated depreciation 131,257 82,518
$ 206,250 $ 221,221
</TABLE>
Depreciation and amortization charged to income was $50,069 and $34,419 in
1994 and 1993 respectively.
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Franchise fees $ 75,000 $ 75,000
Customer lists 26,885 26,885
101,885 101,885
less accumulated amortization 23,272 17,730
$ 78,613 $ 84,155
</TABLE>
Amortization charged to income was $6,872 and $7,292 in 1994 and 1993
respectively.
<PAGE>
C - LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
1. Bank loan $ 103,063 $ 135,402
2. Shareholders loan 145,664 164,044
248,727 299,446
less current amounts due 28,676 32,339
$ 220,051 $ 267,107
</TABLE>
1. Bank loan: The shareholders of the company obtained a Small Business
Administration loan in October 1989 to provide working capital as well as
capital to purchase equipment. The loan is collateralized by equipment and
receivables of the company as well as personally guaranteed by its
shareholders. As a subsequent event, the bank loan was paid in full
from the proceeds received in the merger with Communications/USA, Inc.
as further explained in Note E.
2. Shareholders loan: This represent advances (primarily for working
capital) from the company's primary shareholder. There is no maturity
or stated interest rate.
Interest expense for 1994 and 1993 was $ 10,059 and $6,631 respectively. The
following is a schedule of principal maturities of long-term debt as of
December 31, 1994:
Year ending December 31:
1995 $ 28,676
1996 31,228
1997 34,138
1998 8,961
1999 0
Thereafter $ 145,664
$ 248,727
D - LEASE COMMITMENTS
The Company leased office space and certain telephone equipment under various
noncancelable operating and capital leases. The original term of the capital
leases are for a period of no less than 60 months and no more than 66 months.
Interest rates vary between 18% and 21%.
<PAGE>
The following is a schedule by years of future minimum lease payments under the
operating and capital leases together with the present value of the net minimum
capital lease payments as of December 31, 1994.
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
<S> <C> <C>
Year ending December 31:
1995 $ 36,744 $ 53,264
1996 36,389 53,264
1997 31,999 53,264
1998 9,389 35,652
1999 3,491 2,252
$118,012 $197,696
Less interest and executory costs 41,706
Present value of net minimum lease payments $155,990
</TABLE>
Interest expense for the obligations under capital lease in 1994 and 1993 was
$33,432 and $11,105 respectively.
E - SUBSEQUENT EVENTS
On May 24, 1995, the Company entered into an agreement to exchange its issued
and outstanding common stock, in a tax free merger, for $550,000 and 250,000
shares of common stock of Communications/USA, Inc. The merger was consumated
in November, 1995. It is to be accounted for as a purchase.
<PAGE>
COMMUNICATIONS/USA, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
COMMUICATIONS/USA, INC.
CONSOLIDATED BALANCE SHEET
As of March 31, 1996
Assets:
Current Assets:
Cash-in-Bank $ 129
Accounts Receivable 65,645
Receivable from Affiliate Company 71,463
Other Current Assets 1,400
Total Current Assets 138,637
Property and Equipment-Net 270,04
Intangible Assets-Net 3,853,001
$ 4,261,687
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable and Accrued Expenses $ 43,631
Obligation under capital leases 105,290
Long Term Debt 342,646
Notes Payable to Shareholders 205,539
Total Liabilities 697,106
Preferred Stock: 14% cumulative,convertible
$3.75 par value, 5,000,000 authorized, 23,750
shares issued and outstanding 89,062
Common Stock: $.01 par value, 50,000,000
authorized, 4,634,864 shares issued and
oustanding 46,348
Additional paid-in-Capital 3,746,637
Retained Earnings(Loss) (317,466)
Total Shareholders'Equity 3,564,581
Total Liabilities and Equity $ 4,261,687
See Notes to Condensed Financial Statements
<PAGE>
COMMUNICATIONS/USA, INC.
STATEMENT OF INCOME RETAINED EARNINGS
AND INCOME PER COMMON SHARE
For the Three Months ended March 31, 1996
Net Sales $ 242,637
Cost of Sales 40,574
Gross Margin 202,063
Geberal and Administrative Expenses 266,306
Depreciation Expense 11,538
Amortization of Intangibles 57,495
Operating Income(Loss) (133,276)
Interest Expense 24,543
Net Income(Loss) (157,819)
Retained Earningg(Loss) 12/31/95 (156,563)
"Preferred Stock Dividend-March 31, 1996" (3,084)
Retained Earnings(Loss) 3/31/96 $ (317,466)
Income(Loss) per Common Share $ (0.07)
Average number of shares outstanding during
the period 4,622,763
See Notes to Condensed Financial Statements
<PAGE>
COMMUNICATIONS/USA, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996
Cash Flows from Operating Activities
Net Income(Loss) $ (157,819)
Adjustments to Reconcile net loss to net cash
(used for ) provided by operating activities:
Depreciation 11,538
Amortizations 57,495
Change in operating assets and liabilities
Decrease in Accounts receivable 29,297
(Increase) in Affiliate Receivable (71,463)
(Decrease) in Accounts Payable and Accrued Expenses (17,394)
Net cash provided(used)by operations (148,346)
Cash Flows from Investing Activities
Equipment Purchases (55,920)
Cash Flows from Financing activities
Payment of Long Term Debt (6,694)
Payment of Shareholders Notes (81,142)
Payment of Capital Lease Obligations (7,692)
Proceeds from sale of common stock-net 205,803
Net cash provided(used) by financing activities 110,275
Net Change in cash (93,991)
Cash at beginning of Period 94,120
Cash at end of Period $ 129
See Notes to Financial Statements
<PAGE>
Communications/ USA, Inc.
Notes to Condensed Consolidated Financial statements
March 31, 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Purpose- Communications/USA, Inc.(the Company)was organized
under the laws of the State of Florida in 1992. It was inactive until May of
1995 when it began to market its stock and negotiate to purchase interactive
voice messaging franchises and related companies.
Principles of Consolidation- The consolidated financial statements include the
accounts of the company's wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Interim adjustments- The condensed financial statements herein presented
include all adjustments necessary to make them conform to generally accepted
accounting principles, consistently applied with prior periods.
Property, Equipment and Intangible Assets-Property and Equipment are recorded
at cost.Depreciation is recorded based on the estimated useful lives of the
assets.
The Intangible assets arise from the consideration given by the company for
the acquisition of franchise rights and customer lists.The allocation of cost
was determined by applying present value techniques to expected cash flows
over the life of the franchise agreements(20 years). Amortization is computed
over the life of the franchise agreements.
Earnings(loss) per common share- Was determined by dividing net
income(loss)applicable to common stock by the weighted average number of
common shares outstanding during the period.
B. Acquisitions
On June 5, 1995, the company acquired all of the assets of two Florida
partnerships.The partnerships were in the business of acquiring licenses from
the Federal Communications Commission(FCC) to purchase air time to provide
interactive video and data services to the public. The company exchanged
213,652 shares of its common stock for all of the assets of the partnership.
The total consideration aggregated $341,843.
<PAGE>
The company acquired all the common stock of Gulf Coast Communications,
Inc.(GCC) for an aggregate price of $1,487,500($550,000 in cash and notes, and
250,000 shares of common stock).The transaction was recorded as a purchase.
GCC is in the business of providing interactive voice messaging to a broad
customer base, through its Voice-Tel franchise.
The company also acquired the assets, including the Voice-Tel franchise
rights, of another company in a transaction valued at $2,340,000.In exchange
for the assets the company issued 562,500 shares of common stock and assumed
approximately $232,000 of debt.
In January of 1996, the company's majority shareholder exchanged his common
stock(approximately 55% of the company's stock)for approximately 83% of the
common stock of an inactive public company. During the first quarter of this
fiscal year the company has advanced $71,463 to this affiliate to begin
operations.
C. Debt.
Obligations under capital leases are primarily for telephone and computer
equipment, with maturities of approximately 36 months. The effective interest
rates for these leases are between 13%-22%.
Notes Payable to Shareholders are related to the acquisitions of the company's
subsidiaries and Voice-Tel franchises.These notes mature from one to five
years and have interest rates ranging from 7-10% per annum.
Long Term Debt consists of bank debt associated with the purchase of the
Voice-Tel franchises, have maturities of five years with interest rates
ranging from 7-10% per annum.
D. COMMITMENTS
The company leases various office space for its main office and subsidiary
locations. The company also leases office space where the telphone and
computer equipment needed to operate its Voice-Tel franchises are located. The
aggregate anuual rental payments are as follows:
<PAGE>
1996 $29,585
1997 19,403
1998 10,695
1999 8,291
2000 4,400
E. Employee Stock Option Plan
The 1995 Employee Stock Option Plan(the Plan) was adopted by the Board of
Directors of the Company on May 4, 1995 and was approved by the shareholders
on May 10, 1995.The Plan provides for the granting of options to purchase an
aggregate of 250,000 sahres of th company's common stock to officers and other
employees of the company.As of the dte of the balance sheet options to
purchase 50,000 common shares have been granted. To date none have been
execised.
<PAGE>
COMMUNICATIONS/USA, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<PAGE>
<TABLE>
<CAPTION>
Communications/USA, Inc.
Pro-Forma Statement of Earnings
Giving effect to the acquisition of Gulf Coast Communications, Inc.
as if it had occurred at the beginning of the year ended December 31, 1995.
As if
GCC CUSA DR. CR Balance
<S> <C> <C> <C> <C> <C>
Net Sales 739,622 65,137 0 0 804,759
Cost of Sales 211,387 32,528 0 0 243,915
Gross Margin 528,235 32,609 0 0 560,844
Gen. & Adm. Expenses 441,915 118,884 0 0 560,799
Depreciation Expense 0 2,752 29,879 0 32,631
Amortization Expenses 0 13,945 182,277 0 196,222
Operating Expenses 441,915 135,581 212,156 0 789,652
Operating Income(Loss) 86,320 (102,972) 0 0 (228,808)
Interest Expense/Other-Net 15,747 48,506 0 0 64,253
Net Income(Loss) 70,573 (151,478) 212,156 0 (293,061)
</TABLE>
Adjustments made to give effect to the transaction as of 1/1/95
(1) Depreciation Expense was computed for a full 12 months.
(2) Amortization of Goodwill was computed for a full 12 months.
No other adjustments were necessary to make the statements meaningful.
<PAGE>
<TABLE>
<CAPTION>
Communications/USA, Inc.
Allocation of Purchase Price
Acquisition of Subsidiries
Fiscal 1995
DR.(CR.)
Subsidiary Cash A/R PP&E Goodw. Franch. C.Lists Debt N/P Shd. C/S APIC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Orion Part. 108,055 241,328 ( 2,184) (347,199)
GCC 24,638 28,617 153,687 987,626 428,571 (135,639) (550,000) ( 2,500) (935,000)
SWFL 70,849 316,915 450,000 1,500,000 (149,249) ( 79,140) ( 5,625) (2,103,750)
Summary 132,693 28,617 224,536 1,545,869 878,571 1,500,000 (284,888) (629,140) (10,309) (3,385,949)
</TABLE>
PART III
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT PAGE
2 CHARTER AND BYLAWS. E-1
2(A) ARTICLES OF INCORPORATION E-2
2(B) FIRST ARTICLES OF AMENDMENT E-9
2(C) SECOND ARTICLES OF AMENDMENT E-21
2(D) BYLAWS E-33
3 INSTRUMENTS DEFINING RIGHTS OF SECURITIES
HOLDERS. E-21
3(A) SECOND ARTICLES OF AMENDMENT E-21
3(B) BYLAWS E-33
5 NONE.
10 MATERIAL CONTRACTS. E-47
10(A) COMMUNICATIONS/USA, INC. EMPLOYEE STOCK
OPTION PLAN E-48
10(B) STOCK PURCHASE AGREEMENT BY AND AMONG
COMMUNICATIONS/USA, INC. AS ACQUIRER AND
JAMES B. AND RUTH A. HOLLIDAY FOR ALL OF
THE ISSUED AND OUTSTANDING COMMON STOCK
OF GULF COAST COMMUNICATIONS , INC. D/B/A
VOICE-TEL OF WEST FLORIDA DATED MAY 24, 1995 E-61
10(C) ASSIGNMENT OF STOCK PURCHASE AGREEMENT FOR
STOCK OF GULF COAST COMMUNICATIONS, INC. TO
COMMTEL/USA, INC. DATED OCTOBER 20, 1995 E-71
10(D) ADDENDUM TO STOCK PURCHASE AGREEMENT BY
AND BETWEEN COMMUNICATIONS/USA, INC.,
COMMTEL/USA, INC., AND JAMES B. AND RUTH
A. HOLLIDAY DATED NOVEMBER 28, 1995 E-73
10(E) JAMES B. HOLLIDAY EMPLOYMENT AGREEMENT
DATED NOVEMBER 28, 1995 E-76
<PAGE>
10(F) RUTH A. HOLLIDAY EMPLOYMENT AGREEMENT
DATED NOVEMBER 28, 1995 E-82
10(G) ASSET PURCHASE AGREEMENT DATED JUNE 2, 1995,
BY AND AMONG COMMUNICATIONS/USA, INC. AND
ORION IVDS PARTNERS E-88
10(H) ASSET PURCHASE AGREEMENT DATED JUNE 2, 1995,
BY AND AMONG COMMUNICATIONS USA, INC. AND
ORION IVDS PARTNERS II E-96
10(I) BRIDGE LOAN AGREEMENT BY AND BETWEEN
COMMERCE ATLANTIC, INC. AND COMMUNICATIONS/
USA, INC. DATED JULY 31, 1995 E-105
10(J) SECURITY AGREEMENT BETWEEN COMMUNICATIONS/
USA, INC. AND COMMERCE ATLANTIC, INC., DATED
JULY 31, 1995 E-131
10(K) $200,000 BRIDGE LOAN PROMISSORY NOTE ISSUED
BY COMMUNICATIONS/USA, INC. TO COMMERCE
ATLANTIC, INC. DATED JULY 31, 1995 E-137
10(L) STOCK PURCHASE AGREEMENT DATED OCTOBER 22,
1995, BY AND AMONG COMMTEL/USA , INC. AND
ROBERT B. FEIMAN FOR 45% OF THE ISSUED AND
OUTSTANDING COMMON STOCK OF HOLT & FEIMAN,
INC. D/B/A VOICE-TEL OF TALLAHASSEE E-142
10(M) ASSET PURCHASE AGREEMENT DATED OCTOBER 23,
1995, BY AND AMONG COMMTEL/USA, INC. AND FEIMAN
& HOLLIDAY, INC. D/B/A VOICE-TEL OF SOUTH FLORIDA
FOR ALL OF THE ASSETS OF VOICE-TEL OF SOUTH
FLORIDA E-146
10(N) LARGO, FLORIDA LEASE E-152
10(O) SARASOTA, FLORIDA LEASE E-173
10(P) FORT MEYERS, FLORIDA LEASE E-180
10(Q) TAMPA, FLORIDA LEASE E-187
10(R) ADDENDUM TO STOCK PURCHASE AGREEMENT BY
AND BETWEEN COMMUNICATIONS/USA, INC.,
COMMTEL/USA, INC., AND JAMES B. AND RUTH A.
HOLLIDAY DATED JANUARY 24, 1996 AND COPIES
OF PROMISSORY NOTES FOR $75,000 AND $150,000 E-215
7 NONE.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Communications/USA, Inc.
...............................................................................
(Registrant)
Date...........................................................................
By.../S/ROBERT C. HACKNEY......................................................
(Signature)
Robert C. Hackney
Chief Executive Officer
<PAGE>
EXHIBIT 2
CHARTER AND BYLAWS
EXHIBIT 2(A)
ARTICLES OF INCORPORATION
EXHIBIT 2(B)
FIRST ARTICLES OF AMENDMENT
EXHIBIT 2(C), 3(A)
SECOND ARTICLES OF AMENDMENT
EXHIBIT 2(D), 3(B)
BYLAWS
EXHIBIT 6
MATERIAL CONTRACTS
EXHIBIT 6(A)
COMMUNICATIONS/USA, INC.
EMPLOYEE STOCK OPTION PLAN
EXHIBIT 6(B)
STOCK PURCHASE AGREEMENT BY AND AMONG
COMMUNICATIONS/USA, INC. AS ACQUIRER AND
JAMES B. AND RUTH A. HOLLIDAY FOR ALL OF THE
ISSUED AND OUTSTANDING COMMON STOCK OF GULF COAST
COMMUNICATIONS, INC. D/B/A VOICE-TEL OF
WEST FLORIDA DATED MAY 24, 1995,
EXHIBIT 6C)
ASSIGNMENT OF STOCK PURCHASE AGREEMENT FOR STOCK
OF GULF COAST COMMUNICATIONS, INC. TO COMMTEL/USA,
INC. DATED OCTOBER 20, 1995
EXHIBIT 6(D)
ADDENDUM TO STOCK PURCHASE AGREEMENT BY AND
BETWEEN COMMUNICATIONS/USA, INC., COMMTEL/USA,
INC., AND JAMES B. AND RUTH A. HOLLIDAY DATED
NOVEMBER 28, 1995
EXHIBIT 6(E)
JAMES B. HOLLIDAY EMPLOYMENT AGREEMENT DATED
NOVEMBER 28, 1995
EXHIBIT 6(F)
RUTH A. HOLLIDAY EMPLOYMENT AGREEMENT DATED
NOVEMBER 28, 1995
EXHIBIT 6(G)
ASSET PURCHASE AGREEMENT DATED JUNE 2, 1995,
BY AND AMONG COMMUNICATIONS/USA, INC. AND
ORION IVDS PARTNERS
EXHIBIT 6(H)
ASSET PURCHASE AGREEMENT DATED JUNE 2, 1995,
BY AND AMONG COMMUNICATIONS USA, INC. AND
ORION IVDS PARTNERS II
EXHIBIT 6(I)
BRIDGE LOAN AGREEMENT BY AND BETWEEN COMMERCE
ATLANTIC, INC. AND COMMUNICATIONS/USA, INC. DATED
JULY 31, 1995
EXHIBIT 6(J)
SECURITY AGREEMENT BETWEEN COMMUNICATIONS/USA,
INC. AND COMMERCE ATLANTIC, INC., DATED JULY 31, 1995
EXHIBIT 6(K)
$200,000 BRIDGE LOAN PROMISSORY NOTE ISSUED BY
COMMUNICATIONS/USA, INC. TO COMMERCE ATLANTIC, INC.
DATED JULY 31, 1995
EXHIBIT 6(L)
STOCK PURCHASE AGREEMENT DATED OCTOBER 22, 1995,
BY AND AMONG COMMTEL/USA , INC. AND ROBERT B.
FEIMAN FOR 45% OF THE ISSUED AND OUTSTANDING
COMMON STOCK OF HOLT & FEIMAN, INC. D/B/A VOICE-TEL
OF TALLAHASSEE
EXHIBIT 6(M)
ASSET PURCHASE AGREEMENT DATED OCTOBER 23, 1995,
BY AND AMONG COMMTEL/USA, INC. AND FEIMAN &
HOLLIDAY, INC. D/B/A VOICE-TEL OF SOUTH FLORIDA
FOR ALL OF THE ASSETS OF VOICE-TEL OF SOUTH FLORIDA
EXHIBIT 6(N)
LARGO, FLORIDA LEASE
EXHIBIT 6(O)
SARASOTA, FLORIDA LEASE
EXHIBIT 6(P)
FORT MEYERS, FLORIDA LEASE
EXHIBIT 6(Q)
TAMPA, FLORIDA LEASE
EXHIBIT 6(R)
ADDENDUM TO STOCK PURCHASE AGREEMENT BY AND
BETWEEN COMMUNICATIONS/USA, INC., COMMTEL/USA,
INC., AND JAMES B. AND RUTH A. HOLLIDAY DATED
JANUARY 24, 1996 AND PROMISSORY NOTES FOR
$75,000 AND $150,000
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